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British SME sector should take lessons from abroad

Jun 10, 2013 Simon Williams

The United Kingdom's small and medium-sized enterprise (SME) sector has reported slight gains in recent months, in areas like sales and short term lending - but not everyone thinks the signs are all good.

"Given the weakness of the economy, this simply doesn't stack up and could suggest the worst is yet to come," said Stewart Baird, director of Stone Ventures, according to The Guardian. "Over the past five years, many of Britain's businesses have been in a protracted agony. In many cases, because of their financial position, banks haven't pulled the plug, but this may change in the short- to medium-term as their balance sheets strengthen."

Baird pointed mostly to the rapidly declining liquidation rate. During the past quarter century, he said the average rate has been 1.2 percent - but that number dipped to 0.7 percent during the past year alone.

Baird believes that fewer restrictions on bank lending offers the best way for the U.K. to overcome its recent struggles, but that doesn't appear to be a viable solution anytime soon. Instead, the news source suggested taking note of the way other countries have arisen from similar situations.

The SME sectors in Japan and the United States, for instance, have overcome dire circumstances because of the help of alternative short term lenders. As banking restrictions remain extremely tight, alternative financiers are opening up their revenue stream.

That's because some of them use different scoring methods, such as Payment Reporting Builds Credit. Instead of looking only at traditional credit scores, these firms consider whether an SME has been able to pay its utility bills in the past, along with other financial factors, to determine whether or not to lend to someone.

In the U.S. and Japan, banks are no more lenient than they were once the recession hit, yet the countries' SME sectors are starting to recover. That's largely because of the aid of alternative short term lenders.