Whilst Prime Minister Theresa May’s dance-themed entrance to the annual conservative conference recently provided a much-needed humor injection to our mid-week existence, SMEs should stop laughing at May and start listening to her policies. Since the 2007-2008 financial crisis, the conservative party has become known for its strict regulation over financial services. This was done in the hope to rescue the dire reputation of big banks whilst persuading the public to believe in them again. Well according to Coriolis Technologies, a data trade flow analytics company, out of all businesses, conservative financial policies are affecting the performance health of SMEs the most.
The Global Financial CrisisAccording to the research, that dark period between 2007-2008 lingers on and continues to rain on the parade of British SMEs. Moreover, the increasingly weak leadership of Theresa May, coupled with ever-tightening financial regulation is affecting businesses at the start of their growth journey, namely, SMEs. Since the crisis, the Tory government has been in power, and under Theresa May it looks like their agenda of strict financial regulation continues. So what does this mean for SMEs seeking finance
Banks are bound by regulationTo stem the social and economic repercussions of the financial crisis, governments subjected banks to increasingly strict regulatory measures. Whilst there was an idea that this move could rescue the sullied reputation of big banks, these measures have crippled SMEs and their chances of gaining easy access to bank-based funding. Factors such as low-interest rates and low margins have made banks less likely to want to offer finance to smaller businesses. In such a heavily regulated climate, and following the drama of the financial crisis, such endeavours are seen to be too much of a high-risk option.
“Coupled with the clampdown on financial institutions, there has been a ?perfect storm” for SMEs who have been starved of the funding they need to trade and grow.” Dr. Rebecca HardingProviding trade finance for SMEs is now seen as a costly ordeal for banks because of the relatively high liquidity and compliance costs entailed. It appears that banks are so paranoid about losing their global reputation again, they won’t even attempt to lend their vast resources to support an SME trade finance market that is worth an estimated $1.5bn globally, according to Coriolis.
Big businesses can navigate these regulations betterWhilst banks are subjected to increasingly strict sanctions and tariffs through the supply chains of their clients, bigger companies, such as corporates, can better negotiate these stumbling blocks by moving their supply chains around.
“This tit for tat approach to the imposition of sanctions and trade tariffs has served to further stifle small business growth.” Dr. Rebecca HardingHowever, SMEs do not have the financial facilities to do this at the level of their corporate cousins. These additional regulatory hurdles make extra work for SMEs, who are already struggling to access mainstream forms of finance, such as funds from banks.
Where does this leave SMEs?Small and medium business owners must remember that it’s not all doom and gloom, even if British politics, with all its ties of trade finance regulation, look that way. What SMEs must remember is that knowledge is power, and if they keep clued up on the changes in politics, and in particular the government’s stance towards financial regulation, they can know which channels to go down when trying to seek finance, and which, quite frankly, are a waste of time and money for businesses such as theirs. SMEs shouldn’t worry themselves about the tariff-ridden minefield of bank-based lending if they’re a brand new and shiny business. Instead, look to different approaches such as crowdfunding, or even to SME focused alternative finance providers to get their business off the ground, or to get that cash injection that could take it to the next level.
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