In this special blog post, CEO of British Business Bank Keith Morgan explains how UK SMEs can still grow despite the uncertain post-Brexit climate.
Post-referendum uncertainty in the UK economy has the potential to impact small business confidence, at least in the short and medium term, and you can read plenty of credible research that suggests people running businesses small and large are deferring investment decisions. For example, prior to the referendum the FSB Q2 2016 Voice of Small Business Index shows there has been a sharp fall in investment intentions, with just 12.2% of UK small firms surveyed planning new capital investment in the next 12 months – less than half the 32% figure for Q2 2015
Whatever the causes, this is a real concern. It is crucial for the growth of the UK economy that the country’s 5.4 million smaller businesses continue to seek finance in order to invest, grow and prosper. It is also important that businesses understand – and have confidence in – the growing choice of funding options available to them.
The UK’s smaller business finance markets are dominated by the four largest banks. Between them, HSBC, Barclays, Lloyds and RBS groups accounted for over 80% of small business loans in 2015, according to the CMA’s retail banking report. The British Business Bank’s 2015/16 Small Business Finance Markets report found that more than half of UK smaller businesses go only to their main bank for a loan when looking for finance, and do not even consider other options.
Businesses not ‘scaling up’
We care about statistics like these because a bank loan may not always be the most suitable form of finance for small businesses. Our Small Business Finance Markets research also showed that roughly half of those businesses rejected for a bank loan will simply stop looking at that point, which of course means they might miss out on potential opportunities to expand and create new jobs, with an adverse knock-on effect for UK economic growth.
In particular, our research found that a lack of businesses scaling-up is hampering UK productivity – there remains a need to stimulate a greater volume of scale-up businesses and SME exporters to counteract the UK’s lagging productivity. OECD data shows that Britain is the leading country in businesses starting-up but near the bottom of the table for the percentage of businesses that grow to more than 10 employees after three years.
The British Business Bank was established in 2014 with a mission to make finance markets for smaller businesses work more effectively, allowing those businesses to prosper and power UK economic activity. Our 2016 annual report, published in July, shows we are currently supporting over 48,000 businesses, working through our 90 finance partners. We support over £3.1bn of finance to UK SMEs and participate in a further £4.4bn of finance to UK small mid-cap businesses.
As well as increasing both supply and diversity of finance for UK smaller businesses through our programmes, we are also firmly focused on raising awareness of the finance options available to smaller businesses. To this end, we recently teamed up with the ICAEW, and a further 21 leading business organisations from across the business and finance sectors, to produce the Business Finance Guide. The guide impartially sets out the range of sources of finance available to businesses – from start-ups to SMEs and growing mid-sized companies.
An increasing number of finance options have become more established, mainstream and accessible to smaller businesses, from asset or invoice finance to challenger banks and peer-to-peer lending. It is very important that we, and our partners in the guide, continue to build awareness and understanding of these options.
Businesses need to be able to access the most appropriate type of funding for their needs –we know that small business finance is not ‘one size fits all’ and that many businesses need help – and information – in order to secure the right type of finance. We have seen awareness of the diverse range of finance options for smaller businesses increase steadily over the last two years, and it is now at 48%, according to our 2015/16 Annual Report. We would like this number to be higher still, and to this end I encourage people to take the interactive journey through our Business Finance Guide and/or download the print version.
One particularly fast-growing area for UK small business funding is asset finance. Our 2015/16 Small Business Finance Markets Report showed that new asset finance volumes with SMEs have steadily increased over the last 4 years. Using data from the FLA, our report shows new asset finance volumes were £16.3 billion in 2015, up from £12.7 billion in 2012.
Asset finance enables smaller businesses to purchase or hire high value equipment or assets over an agreed period of time, typically plant and machinery – meaning they do not have to make such a large initial outlay.
Shire Leasing is the largest privately owned funding house for B2B equipment leasing and asset finance in the UK. Based in Tamworth, Shire’s portfolio now has over £73 million of receivables. In 2014, the British Business Bank provided Shire with a £40 million facility over three years to help provide additional asset finance to the small business market.
One of the businesses Shire helped was Wolverhampton-based Go-Direct. Gary Oliver initially founded Go-Direct as an employment agency specialising in recruiting HGV drivers, but wanted to diversify his business to include running training and support courses for drivers. He approached Shire Leasing for finance that would allow the company to lease a fleet of 40 new HGVs. Today Go-Direct is spread across two sites and employs approximately 50 full-time employees as well as numerous sub-contractors and temporary workers – it’s a healthy, growing business.
This is just one example of how small businesses have benefited from the increasing range of finance available. In the current environment, we encourage all small businesses to think broadly about the finance options available to fund future investment and growth.
Businesses, and those who advise them, can access, download and print the Business Finance Guide for free here: www.thebusinessfinanceguide.co.uk/bbb