THE Federation of Small Businesses (FSB) has urged the Government to look abroad for imaginative solutions to financing economic growth.

In a new report 'Alt+ Finance: small firms and access to finance', the FSB is calling for alternative forms of finance, such as peer-to-peer lending models between individuals without the involvement of a traditional financial institution, and to learn the lessons from other countries.

It fears that the one-size-fits-all banking system is dominated by a handful of large London-based national and international banks, which disenfranchises smaller firms in areas such as the North-East.

The decline in lending to British businesses might not have been so sharp if the UKs retail banking sector operated more like those in the US and Germany and the government did more to promote alternative lenders, the FSB said.

Banks in those markets had been more effective at maintaining lending to small businesses because decision making was more transparent and devolved to local branch heads, according to the FSB.

Between 2007 and 2010 there was a 24 per cent fall in the number of successful loan applications for small businesses in the UK, compared to only a nine per cent decrease in Germany. A similar story emerges from the US, where its Small Business Administration's Government-backed loans for small businesses have played a key role in funding its economic recovery plan. Ted Salmon, North East Regional Chairman, Federation of Small Businesses, said: "We need to accept that in its current form, our banking structure might never fully cater to the needs of the North-East business community. 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.

"Our report puts forward a number of feasible suggestions to stimulate the debate. This thinking needs to start now in order to avoid a repeat of the last few years."