Basel banking rules demanding a 300 per cent risk weight be applied to small business, 15 times more than applied to a mortgage

Basel Committee on Banking Supervision is demanding a 300 per cent risk weight be applied to small business funding. Compared to residential mortgages that carry a weighting of less than 20 per cent, this would make it uneconomic for major banks in Australia to lend to small businesses. via Basel banking rules could lead to �2bn more SME funding.

UK Perspective – interesting developments for alternative business finance

The Bank referral legislation, part of the Small Business Act, could see up to £2 billion more funding being provided to SMEs, according to figures produced by the Alternative Business Funding Portal (ABF).

The ABF estimates state that, once implemented, the legislation would see more than 100,000 small businesses fast-tracked to alternative finance providers. This in turn could see up to £2 billion of funding enter the SME space within the first 12 months.

ABF has also identified that recommendations from the Basel Committee on Banking Supervision, demanding a 300 per cent risk weight be applied to small business, could see the initial 100,000 small business funding referrals from the banks to the alternative funding sector increase dramatically in the future.

Adam Tavener, chairman of pensionledfunding.com and catalyst for the ABF, urged the next government to back the body’s mission in light of the new legislation.

“With a potential £2billion in alternative small business funding as a result of the banking referral regulation, it is vitally important that the party or coalition government elected in May drives the implementation phase through as quickly as possible,” he said.

He went on to say that, even though the organisation is not in favour of the new Basel rules, they could work in favour of the alternative lenders.

“If enforced, it will clearly increase the number of small businesses declined for finance by the banks and, as a result of the referral system, these will be re-directed to alternative funding providers,” he said.

The ABF is a group that aims to bring together the market-leaders for all forms of alternative funding: including invoice trading, peer-to-peer and pension-led funding. Some 12 new funders are set to join the umbrella organisation. Among them are UK Bond Network, Funding Knight and Venture Founders.

Paul Mildenstein, CEO of ABF portal funder Liberis, said the organisation’s impact on SME funding “should not be under-estimated”. “The ABF group has been a principal driver in shaking up the SME finance sector, providing a collaborative and accessible marketplace for borrowers and emerging lenders alike,” he added.

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