Alternative sources of finance may solve the credit crisis that is hitting small firms, says the Forum of Private Business (FPB).

As the government’s Public Accounts Committee finds that banks are breaking their promises to restore lending to the small business sector, the hunt is on for other suitable funding streams that can help SMEs survive.

FPB policy spokesman Matt Goodman said: ‘Our research indicates that smaller businesses are too dependent on the banks for finance. [However], the recent crisis in the banking industry has made it clear that access to credit should be less dependent on the economic cycle. Any way of reducing the feast-or-famine view of credit must be resolved before the next economic downturn.’

The FPB argues that policymakers should look into options such as corporate bonds, leasing, invoice financing and supply chain credit as means of sustaining SMEs. Following recommendations from the 2009 Rowlands Review of business access to finance, the FPB also earmarked venture capital as a crucial stimulant.

‘We will continue to lobby for the banks to increase lending to small firms and decide credit applications through a fairer and less centralised process,’ Matt added. ‘But at the same time, we believe the government needs to put credible alternative sources of finance in place that will reduce the banking industry’s lending monopoly.’

The FPB also thinks that the government should work towards cutting small firms’ dependency on external finance altogether. The group has set out its views in a discussion paper, which it will submit to the Treasury.