Wednesday, July 8, 2020

Lack of SME finance is squeezing UK growth prospects, says FSB

Restricted access to alternative finance options among small businesses is restricting UK economic growth, according to a new report from the FSB – and the position is worst for women and ethnic minorities.

Launched today, ‘Going for Growth’ shows that only one in seven small firms are currently applying for external finance, with more than two thirds being offered lending rates above 4%.

Women business owners, those from black and minority ethnic backgrounds and those outside London and the South East find it particularly difficult to secure new funding. More than four in ten (43%) women describe the accessibility of new credit as ‘poor’, noticeably more than their male counterparts (38%).

Of those that did apply for finance in Q3 2018, 70% sought a bank loan or overdraft facility. Lack of meaningful competition within the small business banking sector is a chronic issue. The UK’s four largest banks – RBS, Barclays, Lloyds and HSBC – control 80% of the commercial loan market.

Half (49%) of UK small business owners are thought to meet the definition of permanent non-borrower: not currently using external finance, with no plans to do so in future. Almost three quarters (73%) would rather grow more slowly than borrow to expand more quickly. Two thirds (68%) say they have no awareness of equity finance.

Going for Growth stresses that Open Banking – which allows business owners to grant third parties real-time access to their banking data – is key to enabling greater access to alternative finance options. FSB is calling on the Government to work in partnership with industry to embark on an Open Banking awareness-raising campaign targeted at small businesses, promoting its potential and allaying security concerns associated with it.

The new report also flags the shortcomings of the Government’s Bank Referral Scheme, which directs small firms that have been denied bank finance to alternative funding matchmakers. Since the launch of the scheme in 2016, only 902 (4.7%) of the 19,000 firms that have been referred through the initiative have gone on to secure new finance.

FSB National Chairman Mike Cherry said: “Despite being a decade on from the crash we still have this dangerous combination of weak appetite for, and low awareness of, alternative finance options, high borrowing costs and inadequate support for small firms that are turned down by banks. Too many small business owners approach the big lender they’ve always dealt with as a first port of call when asset, peer-to-peer or equity finance could be a much better match for them.

“Efforts are being made – not least by the British Business Bank – to address these issues, but there’s still a huge amount of work to do. Open Banking holds massive potential. Having real-time access to accounts will make it easier for finance providers and investors to identify the right routes for clients and make decisions swiftly. We need to see the Government working with industry to promote Open Banking among small firms, while regulators need to ensure that lenders are meeting all of their Open Banking obligations.

“The Bank Referral Scheme is a vital initiative – one that should be continued. But it’s falling short of the mark. Far more pressure needs to be put on banks to ensure they are doing all they can to make those they turn down aware of alternative routes. Referring rejected small business owners shouldn’t be a box-ticking exercise. Big lenders should be made to work to meaningful targets.

“We know that women and BAME business owners face a number of additional barriers when it comes to accessing finance for growth. The BBB’s Aspire Fund was a welcome intervention, helping many women in business secure new funds. We need to see the launch of a similar mentoring initiative which provides support for all of the groups that face unique barriers in this space.”

FSB warns that a chaotic no-deal Brexit would further restrict small business access to finance. Its new report highlights the role played by the European Investment Bank (EIB) in improving small business access to new funding across the UK.

The EIB put more than £3 billion behind small business finance markets between 2006 and 2016 and backs the £400 million Northern Powerhouse Investment Fund (NPIF) and £250 million Midlands Engine Investment Fund (MEIF).

Mike Cherry added: “Suddenly losing access to the EIB would rattle small business finance markets, making it even harder for small firms to access new funding. The hit to the wider economy would be significant, stifling already weak productivity and growth.

“After Brexit, we need to see EU funding streams matched and replaced immediately – the Government should be looking at further expanding the role of the British Business Bank. It was encouraging to see the Chancellor outline Brexit contingency plans for the BBB at last month’s Budget. They have to be a last resort though. The goal should still be to secure a transition period as part of an ambitious Brexit deal that works for all small firms.”

A message from the Editor:

Thank you for reading this story on our news site - please take a moment to read this important message:

As you know, our aim is to bring you, the reader, an editorially led news site and magazine but journalism costs money and we rely on advertising, print and digital revenues to help to support them.

With the Covid-19 lockdown having a major impact on our industry as a whole, the advertising revenues we normally receive, which helps us cover the cost of our journalists and this website, have been drastically affected.

As such we need your help. If you can support our news sites/magazines with either a small donation of even £1, or a subscription to our magazine, which costs just £31.50 per year, (inc p&P and mailed direct to your door) your generosity will help us weather the storm and continue in our quest to deliver quality journalism.

As a subscriber, you will have unlimited access to our web site and magazine. You'll also be offered VIP invitations to our events, preferential rates to all our awards and get access to exclusive newsletters and content.

Just click here to subscribe and in the meantime may I wish you the very best.




Latest news

Modular installation firm boost senior team as COVID turnaround continues

East Yorkshire modular installation firm, Frontier Modular Services, has strengthened its management team with the appointment of Adam Millikin as Operations Manager. Mr Millikin, who...

Wakefield logistics facility acquired in £20m deal

Hines Glob­al Income Trust has acquired a UK logistics asset at Wakefield 41 Industrial Park from AEW UK Core Property Fund for £20.635 million. Located...

Business volumes fall at record pace in financial services

Business volumes in the financial services sector declined at the quickest rate on record, according to the latest CBI/PwC Financial Services Survey. Profitability and...

Job applications rise and competition intensifies

Competition for jobs has intensified as the lockdown eased with applications rising by 32% in June, according to a new market report. The report, from...

Croda swoops for US life sciences firm

Croda International, the Goole-headquartered speciality chemicals producer, is acquiring US life sciences business, Avanti Polar Lipids. The deal brings together Avanti's expertise in lipid-based drug...

NPIF-backed business launches thermal imaging tech to detect COVID-19

Connectus, a connectivity and end user managed service provider, is launching thermal imaging technology to help businesses to detect COVID-19. The company – which has...

Related news

Modular installation firm boost senior team as COVID turnaround continues

East Yorkshire modular installation firm, Frontier Modular Services, has strengthened its management team with the appointment of Adam Millikin as Operations Manager. Mr Millikin, who...

Wakefield logistics facility acquired in £20m deal

Hines Glob­al Income Trust has acquired a UK logistics asset at Wakefield 41 Industrial Park from AEW UK Core Property Fund for £20.635 million. Located...

Business volumes fall at record pace in financial services

Business volumes in the financial services sector declined at the quickest rate on record, according to the latest CBI/PwC Financial Services Survey. Profitability and...

Job applications rise and competition intensifies

Competition for jobs has intensified as the lockdown eased with applications rising by 32% in June, according to a new market report. The report, from...

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.

Close