Traditionally, if you were looking for the best loans in the UK for a small business then you would be unlikely to approach a building society because they have typically had relatively low lending limits and offered only small loans, which may have been suitable for someone who just wanted to start a micro business but not sufficient for those with greater aims. But there are now plans in the UK to alter the rules governing building society lending so mutual lenders could soon be in a position to compete for high value loan business with the major banks, private banks and other lending institutions.

UK Building Societies such as the Nationwide, Chelsea and Yorkshire will, under new proposals by the UK Government, be allowed to change the way in which they raise funds for lending to their members and non-members seeking a substantial loan. Currently only half of a building societies funding can be obtained from individuals and institutions which are not members of the society; the other half having to come directly from the society’s own investors, borrowers and savers.

These changes are due to come about following recommendations from the Independent Commission on Banking and the main advantage, once the changes are implemented, will be a relaxing of funding rules to allow building societies to borrow on the wholesale money markets. The UK Government is committed to increasing the amount of choice and diversity in financial services and believes that building societies could play a vital role in this area.


During the most recent global economic slump, wholesale funding was expensive so the benefits of this change may be slow in appearing for the individual business loan borrower who is currently struggling to obtain the business loan they need due to increasingly stringent lending criteria and a limited number of institutions prepared to authorise loans. However, it does present alternative options for future borrowing so make sure the employees involved in seeking funding are aware of the additional options.

Building Societies in the UK have around 25 million customers and have very different, lower risk business models to the major high street or retail banks so have traditionally been used for relatively small home loans rather than for a business loan. But any legislation that increases competition in the business loan market could only be a good thing for borrowers who could benefit from this greater competition with reduced lending rates and a wider choice of products.

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