Business needs drastic action to fill £190bn five-year funding gap By PERRY GOURLEY Published on Saturday 17 March 2012 00:00 BUSINESSES will face a £190 billion funding gap in the next five years unless more is done to stimulate alternative forms of lending to high street banks, a government-backed taskforce has warned. Many small businesses are already struggling to borrow money as banks rein in loans but the committee, led by Legal & General chief executive Tim Breedon, warned the problems will intensify when demand for credit increases as the economic recovery gathers pace. The report, which warns the economy is at a "critical stage," predicts demand from businesses for credit will outstrip supply by between £84bn and £191bn over the next five years as banks continue to hoard cash. It calls for a single government agency to support small businesses, similar to one in Germany, and for a new body to bundle together and sell loans to help small businesses gain access to finance. It also says large businesses, many of which are sitting on large cash piles, should do more to help smaller firms, including paying them more swiftly. It also suggests the main accountancy firms should set up a new business finance advice network. Breedon, chairman of the task force, said: "There is compelling evidence that access to finance is expected to become more acute as business confidence and growth returns, whilst continuing bank deleveraging is likely to leave a significant funding shortfall. Whilst there is no silver bullet to addressing this issue, we have made a number of recommendations which I believe will collectively help open up alternative financing channels for SMEs. Stuart MacKinnon, spokesman for the Federation of Small Businesses in Scotland, which has recently done its own report into SME financing, said "bold action" was now needed to develop alternatives such as peer-to-peer lending that small businesses could have confidence in. "We need to build alternative routes that connect savers and investors with viable small businesses eager to grow, and thereby introduce innovation and competition to the sector," he said. The CBI said the report confirmed the "scale of the problem" which it highlighted in a recent report which said medium-sized companies had to have access to fresh sources of finance to achieve their growth potential. Director-general John Cridland said: "This report rightly recognises the important role that banks will continue to play. But many firms need access to a broader range of finance. "This could be invoice financing to help with short term cash flow, or access to bonds and private placements which would provide the more "patient" capital growing firms need to invest in the longer-term." The report comes ahead of the announcement early next week by Chancellor George Osborne of a £20bn credit easing scheme to boost lending to small businesses. Business Secretary Vince Cable said: "We need to reshape the UK's finance landscape to better serve the needs of ordinary businesses, helping more companies find the support they need to start and grow." Cable added the government will now review the recommendations presented by the task force and announce its response shortly.