Telling the truth about SME life today

Supporting business access to finance is more important than ever

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There are encouraging signs that the UK economy is growing and increased confidence in the future is leading to an upswing in business investment, including by small firms.

Ensuring UK businesses have access to the right finance at the right time is more important today than ever before, and so it remains the biggest challenge facing the UKs small business community.

When a small firm has an issue with finance their high-street bank is their first port of call for all help; it’s the organisation that handles their day-to-day banking, perhaps run by the manager who set up the businesss first account. And high-street banks do have an important part to play. But there are many more options in the market: angel investors, new banks, debt funds and internet platforms. In many case these will provide better support to businesses needs
We believe there continue to be important groups that do face funding issues, especially but not exclusively start-ups and growing firms. But theres another really important barrier, which is that UK firms arent aware of where to go for what. As it is, many businesses lack the knowledge or confidence to get the finance when they need it most. Indeed, recent research found that a fifth of all businesses dont seek funding even when they think they need it most.
Its no secret that a business needs different levels of funding at different stages of its life, but despite this, the overwhelming majority of British firms persist in viewing alternative finance as Plan B.
If you are an early stage company then no doubt you may be looking for sources of seed funding equity whereas if you are at a slightly later stage, you could be looking for venture capital funding. To expect a one-size-fits all policy to serve businesses at wholly different stages of their development simply won’t work anymore.
Technology has opened the doors to innovation and helped move the funding debate beyond the traditional bank-or-bust paradigm, and today we are now seeing collaborative approaches that are offering solutions where they are needed most.
Identifying new models that promote collaboration and enable British firms to realise their growth ambitions is precisely why the British Business Bank was established. We are working to ensure that finance markets for small and medium-sized businesses work effectively, allowing them to prosper, grow and build economic activity.
Take crowdfunding, one of the most innovative developments in finance for decades. It is democratic, transparent and imaginative as it lets the crowd of private investors engage directly with firms looking to finance. There are now 600 crowdfunding platforms in the world, which have together raised some $5bn for new ventures.
Here in the UK, there are around 40 crowd platforms that last year alone provided more than 840m of new money for companies pitching either through debt, equity donations or reward-style incentives. The amounts being raised are growing by the month, but still pale in comparison to the traditional banks which provide some 7bn a month to SMEs but theres enormous potential for cross-platform partnerships.
The recent launch of the partnership between Santander UK and Funding Circle which matches borrowers with private investors is a case in point, as well as an example of how collaborative partnerships can provide a solution to an impasse. Companies the bank rejects for a loan will be referred to the alternative lender, while in return, Funding Circle will direct borrowers back to the group if they are looking for day-to-day banking services. This new arrangement, the first of its kind in the UK, is expected to provide thousands of small businesses with greater access to finance.
This is a great example of how traditional and new finance providers can work together and is a strong indication that banks are beginning to change their practices to give smaller businesses greater access to finance.
The British Business Bank is committed to providing support to new entrants and we are already seeing the benefits, earlier this year committing to provide Funding Circle some 40m over the coming months. Through its new partnership with Santander, Im sure this sum will reach even more than we had initially hoped.
The British Business Bank is working through more than 80 partners such as Market Invoice, Boost & Co and BMS Capital. We use their existing distribution routes to help maximize the impact of the private sector and soften the risk posed when lending to smaller organisations.
Identifying innovative partnerships such as these is the only way to bring an end to the one-cap-fits-all attitude to finance that has long threatened to stifle growth, providing myriad of alternatives to lending models that have remained relatively unchanged for decades.

Keith Morgan is CEO of The British Business Bank



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