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Uncertainty and Opportunity as Small and Medium- Sized Enterprises Face Banking Change

Over 220,000 small businesses set to form part of the biggest banking shake up in years

Thousands of small businesses across the UK who are the Royal Bank of Scotland (RBS) customers, are being incentivised to change their banking facilities.

This is set to cause confusion for many small businesses without the time or resources to assess what options are now available in the wider market, according to Duff & Phelps, the global advisor that protects, restores and maximises value for clients.

RBS contacted over 220,000 small business customers with turnover under £25m to inform them of this new opportunity which has come as a result of the £45 billion taxpayer-funded bailout for RBS at the height of the financial crash in 2008. The bank is being forced to provide £350 million for rivals to offer incentives to its customers to switch, as well as £425 million for a ‘capability and innovation fund’ to help other banks and finance firms expand their services to the Small and Medium-Sized Enterprise (SME) sector.

The so-called ‘alternative remedies package’ stems from the bailout that saved RBS from collapse. Since this qualified as State Aid under European Commission rules, the bank had to agree to reduce its size and market share. It was ordered to sell five parts of the business and while a home was found for four, the challenge arose when it came to its 220,000 SME customers. The original plan – to place all the customers into a newly reformed Williams & Glyn division – collapsed in 2013 and a later plan to float the unit also failed.

Paul Smith, Managing Director in the Debt Advisory practice at Duff & Phelps, stated: “Since the 2008 financial crash, the lending market has undergone seismic change with a number of new players entering the market. The question for those SMEs across the country is how can they make sense of all of this and do the right thing by their businesses? SMEs who have historically banked with RBS are now facing a highly complex and time-consuming dilemma, and without professional support we fear many SMEs may make ill-informed decisions.”

“There is currently so much choice and cash available to SMEs in the market that this may present them with an opportunity to secure a significantly improved funding package, offering more flexibility at a reduced cost.”

Duff & Phelps’ Debt Advisory team works in partnership with businesses to ensure the most effective and appropriate funding solutions are in place. The team includes a number of banking professionals with considerable experience in the SME space.