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Putting capital where it counts

Posted at September 24, 2013 | Categories : News

CMM managing director, Graham Allen, is a regular contributor to the National Association of Commercial Finance Brokers (NACFB) newsletter and his latest article on the financing of the UK’s SMEs is available below:

Putting capital where it counts

I recently stumbled across a new report that rings a few alarm bells regarding government policy and the financing of the UK’s SMEs. With NACFB members at the sharp end of SME funding, I thought it worth sharing, in the hope of hearing your reactions.

The importance of SMEs in the UK’s economic recovery, and the willingness of leading banks to lend to them, are constantly in the headlines.

However, according to think-tank, Demos, repeated efforts by policymakers to stimulate lending in the sector are not helping.

Ministers seem convinced that a lack of SME lending is holding back growth but the report sets out to explode a few myths in this area, arguing that most SMEs don’t wish to borrow from a bank and of those that do, 90% have no problems getting the financing they want.

What’s more, the cross-party group concludes that the majority of SMEs are not significant contributors to economic growth and that two commonly held assumptions need reviewing as follows:

“First, rather than thinking small, we should think growth, focusing our efforts on those businesses with the will and potential to deliver growth regardless of size.

“Second, to target the parts of the economy where growth is achievable, we may need to look beyond bank lending and devise a funding environment able to support the risks associated with innovation and start-ups.”

Among a raft of recommendations, Demos, proposes a return to the model of the Industrial and Commercial Finance Corporation, and that we learn from Canada how to develop a reliable SME registry.

Apparently, the UK lacks adequate and reliable data on the sector – we do not even have up-to-date numbers on how many SMEs there are!

In addition, the study recommends that we develop SME impact assessments and focus on increasing the growth potential of our SMEs, rather than simply increasing the number we have.

Author, Alan Freeman, also argues that infrastructure and the UK’s business culture pose much greater challenges to SMEs than access to bank loans.

He then goes on to take a look at why SMEs are the subject of so much political attention, given a lack of robust evidence that they fullfil many of the claims made on their behalf for incremental growth.

The answer? Small business owners “are part of a large and vocal constituency – they are good at getting attention and they have a lot of votes”, according to the report.

Well, I will leave you to mull that over and if you are gripped by my taster of the Demos report you can read the whole thing via the link at the end of this article.

Moving on to an area of government policy that is creating as heated a debate as SME funding, I am adding a few comments of my own about infrastructure.

Basically, whether a firm is large or small it won’t make a profit if people and goods and services can’t get from A to B. But it seems to me that in the UK we see investing in infrastructure as someone else’s responsibility.

Anyone travelling north of London on either the East or West mainlines will tell you that the trains are packed and that’s just people – it should be remembered that the HS2 scheme is also intended for the transportation of goods.

Closer to home, a large wind farm development is currently under threat from the 600 households it will affect – although only 30 to 40 homeowners will experience major disruption.

I am not out of sympathy with those whose homes are either to be knocked down or deprived of a decent view by a major infrastructure development, and I am certainly not in favour of paving over the countryside.

But if the opposers are successful in their fight would it be reasonable to ask if they would mind having the electricity switched off from time to time when we are short of power? If not, whom should we ask?

So what are your views and experience on what I see as a long-standing negative attitude to essential infrastructure development in the UK, and a few other things besides?

For example, we are so good at invention and innovation but not so good at capitalising on it.

Remember the Hovercraft and, more recently, the Organic Rankine Cycle, both invented in the UK and developed overseas.

On that note, I will sign off by re-quoting Demos, which advocates “a funding environment able to support the risks associated with innovation and start-ups”.

The Demos report is available at:

 

http://www.demos.co.uk/files/DF_-_Finance_for_Growth_-_web.pdf?1378216438