The recent EU referendum result will do little to improve SME’s access to finance, but growing companies are also lacking the right information on their financing options. That was the verdict of several experts who gave evidence to the Business Innovation and Skills Committee yesterday.
And Funding Circle co-founder James Meekings confirmed that while last week’s EIB commitment to provide £100m to UK small businesses via Funding Circle was safe despite Brexit, the future of the EIB scheme to provide lending to UK businesses was at risk.
“That was a start to create a multi-billion pound programme for getting more funds into UK business. The programme is at risk. If I’m honest, it’s very unlikely to happen now. Who knows? From our situation we obviously want it to happen,” he told the Committee.
Meekings suggested the British Business Bank, which has invested about £60m in Funding Circle, could step in to fill the gap for small business borrowing.
More – and better – information needed
The need for some clarity of ongoing funding arrangements in the wake of the Brexit vote was also paramount, according to Marcus Stuttard, Head of UK Primary Markets at AIM. “We would expect that from a demand perspective that companies will probably delay making investment decisions and therefore requesting finance as well. The greatest thing we can all do is to remain collaborative, but also to provide as much certainty as quickly as possible,” said Marcus Stuttard, chief executive of London’s junior market Aim.
One witness, representing a new lender, suggested education must be priority. “A lot more needs to be done, both in terms of availability of finance but also education on the availability of finance. 90% of SMEs simply go to their current account provider for finance and that’s where the education needs to come in: they need to know about viable alternatives,” said Rishi Khosla, CEO, Oaknorth Bank, who was present to give the view from the new entrant’s perspective.
More to be done
Much of Khosla’s evidence centred on helping SMEs understand their their options. While advisers played a critical role in helping fast-growing firms about their next steps, “there are examples where more can be done” to help new sources of capital, he said.
“There are very good Government incentives like the Funding for Lending scheme… but if you look at a lot of plumbing around collateral requirements and haircuts, they significantly disadvantage a new institution such as ourselves that don’t have a back book to pledge as collateral,” Khosla said.
AIM’s Stuttard highlighted the recent publication of the Business Guide as a good start, but admitted that smaller businesses needed help in navigating through the financing options as they grow. “A lot of owners – and early stage investors – don’t quite know what the next form of finance should be as they grow. We’ve launched our Elite programme to promote visibility and the profile of businesses that have grown through different forms of finance, and a part of that has been bringing together different providers of finance to work together to support businesses.”