Treasury calls for business finance options

The Discussion document seeks views on the barriers to more diverse financing for firms with the intention to introduce proposals for reform later in the year.

Financial Services Secretary to the Treasury, Paul Myners said: "The extraordinary events in credit markets over the past two years have shown that the continued availability of any single form of business finance cannot be taken for granted. Right across the world, firms that had relied on loans from banks to finance their operations found themselves in a very difficult situation when bank lending contracted.

"Here in the UK, our large corporations have had a great deal of success in accessing finance directly from credit markets with a surge in corporate bond issuances. Smaller firms, however, have not been able to similarly replace bank lending by directly tapping financial markets or non-bank financing.

"A more diverse funding market, where large and mid-size firms can go directly to markets or have options other than banks when they are looking for support, would clearly be an advantage to the UK economy, not just in economic slowdowns."

The Treasury announced its plans to publish a discussion paper on non-bank lending channels in December's Pre-Budget Report. Today's document focuses on a range of issues relating to business finance including:

• credit assessment and monitoring;
• corporate transparency;
• transparency in the pricing of bank loans
• UK investor preferences;
• non-bank loan markets and high yield bond markets.

The document attempts to identify barriers to the development of these alternative sources of finance. The Treasury is seeking feedback from interested parties, particularly the investor and business communities.

The document can be found at http://www.hm-treasury.gov.uk/fin_non_banking.htm.