Secured Business Loan finance
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A Quarter of Small Businesses Would Cut Staff if They Couldn’t Access New Finance

According to new research commissioned by ground-breaking financial utility, Saxo Payments Banking Circle, SMEs are facing potentially fatal challenges in accessing finance to support the growth of their business.

“Since the financial crisis began in 2008, mainstream banks have been less willing to lend, particularly to smaller enterprises and this has forced SMEs into an unfair fight for the finance they need to compete effectively,” explained Anders la Cour, co-founder and Chief Executive Officer of Saxo Payments Banking Circle. “Our research found that lack of access to additional finance would force 25% of SMEs to let employees go. Nearly a third (30%) would have to reduce prices to encourage sales and increase cashflow, and 39% would be unable to buy the equipment the business needs.”

Over 500 financial decision makers and directors in SMEs that have an online presence responded to the research commissioned by Saxo Payments Banking Circle. Almost all (92.5%) have accessed business finance within the past five years, but many have experienced difficulties in borrowing from their usual bank.

Interest rates and fees were the biggest concern, with 58% saying they would consider finance from a non-bank if it offered lower interest rates. 44% would do so for lower arrangement fees. 25% would be attracted to a non-bank by simple online account management.

The reason for SMEs going into battle for finance varies, but buying equipment was the most common reason why they needed extra cash – for 52.9% of SMEs. Purchasing inventory came in second place (34.5%), followed by expanding into new markets for 27.5%.

The most common type of finance used was a one to three year loan, taken out specifically for the purpose. The second most common type of finance was an overdraft. And, whilst likely to be more expensive than other finance facilities, 60% of SMEs with 10-49 employees said they had relied on their overdraft within the past five years. Without that essential facility they would have had to take drastic steps to cut costs.

Ability to access finance quickly is essential for small businesses working in a fast-paced market and trying to compete effectively. However, the Banking Circle research painted a worrying picture of the length of time firms wait to get their hands on the cash their business needs. Just 3% managed to get the finance arranged within a week. 33.3% took 1-2 weeks and 36.3% waited 3-4 weeks for the finance to be arrange. 2.1% of SMEs waited up to six months for their finance – a small percentage, but representing almost 120,000 businesses across the UK.

“SMEs play a vital role in the global economy, and anything holding them back from their potential could have a severe and far-reaching impact”, continued Anders la Cour. “The business landscape is changing, and traditional lenders are not able to keep up and meet the needs of SMEs. Only financial institutions willing to adapt to new market conditions, working with third-party providers in an ecosystem model, will remain competitive and successful in the digital age.”

Source: Bobs Guide

Women-led startups the UK economy
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Women-led startups are more fundable but men receive most of the cash

A study by Access Commercial Finance found that only 16% of applications received since July 2016 were submitted by women.

The firm handled 833 applications in total during that time period, but only 135 of those applications came from women. Men made 698 applications for funding during the same period.

However, the research showed that the women who did apply for funding had a success rate 18% higher than men. 13% of applications from women were successful, compared to 11% from men.

Overall though, due to men making 84% of the funding applications, they received the vast majority of funding awarded, £4,051,052 in total. Women received £332,437.

Not only are women less likely to apply for funding than men, they also ask for less money on average when they are do apply.

Based on applications where the full amount applied for was awarded, women received £22,162 each, £28,476 less than men, who received £50,638 each on average

Matt Haycox, consultant at Access Commercial Finance, hopes the findings encourage more women to think about applying for business funding.

“This data shows us that women are on average either better at putting together a funding proposal for their small businesses, or they just have more fundable businesses. Either way, it’s potentially good news for women-owned businesses and startups.

“But given the low application rate and low funding request amount for women, men are still getting most of the cash due to sheer volume of applications.

“We hope our data gives any woman considering applying for business funding the confidence to do so.”

Source: London Loves Business

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Just 11% of business lending is now fixed-rate loans

Just 11% of the £416bn in total stock of loans to businesses are now being provided on a fixed rate – dropping by a third from 18% two years ago.

This leaves businesses with huge exposure to rising interest rates, Hadrian’s Wall Capital, the London-based specialist debt adviser, argued.

The drop came as banks prepared for interest rate rises and de-risked their loan books. Hadrian’s Wall Capital thought this has left businesses dealing with significant uncertainty over their cost of finance and unable to plan corporate finance activity and investment over the coming years.

Marc Bajer, chief executive of Hadrian’s Wall Capital, said: “Now is the time for small businesses to lock in to fixed-rate debt, before interest rates rise again.

“However, fixed-rate loans are now virtually unavailable from banks, and many SMEs are reliant on floating rate debt. Any jump in interest rates could see small businesses burned by their reliance on floating rate loans.

“Corporate finance advisers should also consider fixed-rate debt when it comes to their corporate finance activities, so as to reduce the threat to them and to their clients, of rising interest rates.

“When interest rates rise, small businesses are likely to suffer financial damage – a rise in the base rate to just 1.5% would cost UK small business billions.”

The firm said that fixed-rate loans are now increasingly difficult for businesses to obtain – especially for small and medium enterprises.

The expected further rise in interest rates of 0.25% in the coming months will cost British SMEs another £355m in interest payments in the first year alone.

Data provided by the Bank of England showed that in 2012, the share of all bank loans to businesses had a fixed-rate as high as 49%.

Hadrian’s Wall Capital said the consequences of both the Credit Crisis and the swaps mis-selling scandal has meant that SMEs are now extremely wary of using swap products.

Additionally, SMEs also have great difficulty in obtaining approval from any institution to fix the interest rate on their loans using swaps, removing another layer of protection from rate rises for businesses.

With interest rates now on the rise, there is a risk that SME growth planning and corporate finance activity could be shelved for the present, as businesses choose to wait for less uncertainty over the costs of floating rate debt.

Hadrian’s Wall Capital said it is important to continuously revitalise UK business by giving them un-interrupted access to debt refinancing, MBO’s and MBI’s.

Fixed-rate lending for such corporate finance activities can help to reduce the risk of rising interest rates to these SMEs.

The growing shortage of fixed-rate bank lending to SMEs has led Hadrian’s Wall Secured Investments to focus on providing long term, fixed-rate, non-callable loans to SMEs, giving them intermediate to long-term certainty over their cost of funding.

This enables them to undertake corporate finance transactions and plan long-term programmes of investment in their businesses.

Source: Mortgage Introducer

Brexit business loans
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Are business loans still viable with Brexit?

Most start-ups need third-party investment to get off the ground. Sometimes, even established companies take out a loan to use as working capital. Whatever the reasoning behind them, business loans are an essential investment type for all manner of businesses, small and large, who wish to borrow. This has been the case for hundreds of years, and British banks and building societies have been happy to show faith.

Is Brexit a spanner in the works?

A spanner has been thrown into the works recently, however. Its name is Brexit, and it has lenders stifled. Some would say worried. There are several reasons for this. Many lenders are worried that Brexit could invalidate their long-term loan contracts with businesses in Europe. Some lenders are worried that a hard Brexit could go as far as to stop them from seeking new business in Europe.

These worries are tangible, and understandable, from both a lender’s point of view and the borrower’s. But do they translate into lenders tightening up their loan applications, and reducing their faith in small business?

The answer is no. Or at least, not yet.

It must be said that banks are reducing lending. It is now harder for people to get a mortgage, for example. However, businesses are still being funded right now, by major banks operating out of London and smaller banks alike. Independent lenders too are mopping up business tidily, committing several million through business finance and asset-backed lending. This is excellent news for small business.

Additional challenges of Brexit for business loans

SMEs do face another challenge with Brexit and lending, though. It is not just unique to them, but it affects them more than large enterprises. That challenge is currency volatility, or the unpredictable movement of exchange rates. If Britain has an unstable economy, then that could cause lenders to shift towards lending to larger businesses over SMEs, because big business is less affected by an instable economy overall. Unfortunately, this does mean inconsistencies with lending procedure month-to-month.

It’s fair to say that the result of the Brexit referendum took most lenders by surprise. Since the result was announced, lenders have attempted to determine what the result means for them. Thankfully, the following months showed that the leave result was not the catastrophe that some economists would have had us believe. Banks have not moved their headquarters from London. Small businesses are still thriving.

The bottom line with lending and Brexit…

Business loans are still viable with Brexit. Start-ups can expect funding as can larger enterprises. However, the need for a sound application is more important than ever before.

The viability of business loans with Brexit is simple – lenders are still lending during the Brexit negotiations. And they will continue lending after them. Specialist corporate finance companies will be the big winners, however, as traditional banks show uncertainty. Expect to see a lot more from finance specialists who offer start-up loans, business finance and equipment refinance solutions to British business.

Source: London Loves Business

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Larger SMEs more optimistic about growth

New data for the final quarter of 2017 by BDRC’s SME Finance Monitor, based on more than 130,000 interviews, reveals that current demand for finance remains limited, but ambitious SMEs are more likely to be financially engaged.

Shiona Davies, Director at BDRC, commented: “There have been no dramatic market changes in SME sentiment since the referendum. Whilst there are some increased concerns about the economy and political uncertainty, larger SMEs in particular are more likely to be planning to grow and to be using finance, as are those SMEs with a long term objective to be a bigger business.

“Four in 10 SMEs are planning business activities that might benefit from funding, but SMEs are as likely to think they would fund a business opportunity themselves as approach a bank for funding. Awareness of equity finance, which could provide longer term funding, appears limited even amongst larger SMEs. For those who do apply for a loan or overdraft, success rates remain high. However, first time applicants’ success rates are currently lower than in 2015, albeit still higher than they were in 2012. Additionally, fewer SMEs who are not currently using finance show any appetite to do so.”

Key findings

Use of (and demand for) finance remains limited, as self reliant SMEs use trade credit, credit balances and financial support from directors in addition to external finance. Awareness and use of longer term equity finance is also limited.

  • In 2017, 8 in 10 SMEs (82%) were profitable and 42% reported having grown, both little changed from 2016.
  • 38% were using some form of external finance, but more (47%) met the definition of a ‘Permanent non-borrower’ with little apparent appetite for finance, similar to 2016.
  • 7 in 10 SMEs (70%) would rather grow more slowly than borrow to grow faster and this has changed little over time.
  • Fewer SMEs in 2017 were ‘happy to borrow to help the business grow’ (34% in 2017, down from 45% in 2016) and the proportion of SMEs who are not using finance but would be willing to do so in future has declined over time (24% of all SMEs in 2015 to 16% in 2017).
  • A third of SMEs (35%) received trade credit and 25% hold more than £10,000 in credit balances. In both cases, most of those with trade credit or credit balances say it reduces their need for finance.
  • 29% have received an injection of personal funds from the owner/director. Given a (hypothetical) opportunity that would require finance to achieve, 39% said the directors or the business would provide the funding, compared to 37% who would approach their bank for funding. 1 in 5 SMEs (19%) would not take up the opportunity because of concerns over the risks associated with debt.
  • In 2017, 5% of SMEs reported making a new or renewed loan or overdraft application in the 12 months prior to interview. This was unchanged from 2016 and remains at half the level reported in 2012 (when 11% of SMEs had made such an application).
  • Overall, 15% of SMEs in 2017 reported any kind of borrowing ‘event’, and 2% had wanted to apply but something stopped them (the Would-be seekers). The Happy non-seekers (83% of all SMEs) remained the largest group, in line with 2016.
  • In a new question for H2 2017, 62% of SME companies said that equity finance was a form of funding that they knew nothing about. Larger SMEs were somewhat more aware, but even amongst those with 50-249 employees, 52% knew little about this form of finance with just 6% of them using or considering using it. 1 in 5 companies were aware of equity finance, but thought it was not a suitable form of finance for them – this varied little by size of company.

Whilst appetite for finance remains limited, a consistent 8 in 10 of those who did apply for a loan or overdraft were successful – although those applying for new money for the first time were somewhat less likely to be successful than in other recent periods.

  • 80% of all loan and overdraft applications made in the last 18 months (to Q4 2017) were successful, in line with other recent periods.
  • Almost all renewals in this period were successful (97%).
  • Applications for new money on loan or overdraft have always had a lower success rate than renewals. For the 18 months to Q4 2017, 63% of applications were successful. This was lower than was seen in the 18 months to Q4 2015 (when 70% of new money applications were successful), but remained ahead of the 49% who were successful in the 18 months to Q4 2013.
  • Success rates for new money applied for by those who had borrowed before was stable (78%), so this decline in new money success rates was due to a lower success rate for first time applicants (currently 50% compared to a success rate of 60% for applications made in the 18 months to Q4 2015). However, as with overall success rates, this is higher than was seen in the 18 months to Q4 2012 and to Q4 2013 when 4 in 10 first time applicants were successful.

Looking forward, whilst more SMEs with employees are planning to grow, there are some concerns about the economic and political climate. Future demand for finance remains stable, but it’s worth noting that a quarter of SMEs are ‘Ambitious risk takers’ with a greater engagement with finance and 4 in 10 SMEs are planning a business activity that might require funding.

  • 45% of SMEs in 2017 were planning to grow. This is somewhat lower than the 49% planning to grow in 2012, due to declining levels of growth amongst 0 employee SMEs (46% to 41% over this period). Growth aspirations amongst SMEs with employees was in line with, or higher than, their aspirations in 2012.
  • The top 3 barriers to running the business remained “legislation and regulation” (15% in Q4 2017), “political uncertainty” (15%) and the “current economic climate” (14%). 29% of SMEs mentioned at least one of these as a barrier in 2017, up from 22% in 2016.
  • 12% of SMEs in 2017 were planning to apply for finance, unchanged from 2016 but increasing quarter by quarter from 10% in Q1 to 14% in Q4 2017. Confidence that the bank would agree to lend was somewhat lower in 2017 at 50%, and remained below the actual success rates achieved. Most of those planning to apply were already using finance.
  • 27% of SMEs in H2 2017 agreed that they both wanted to become a much bigger business and that they were prepared to take risks to succeed. These were more likely to be younger, innovative businesses that were, in turn, more likely to use and to apply for finance. A willingness to borrow to grow was a key predictor of being one of these ‘Ambitious risk takers’.
  • 42% of SMEs in H2 2017 were planning to undertake one or more business activities that might require funding, including 19% planning to take on more staff, 17% planning to invest in plant and machinery and 16% planning to develop a new product or service. Larger and younger SMEs were more likely to be planning such activities, as were those planning to grow overall (61%). 19% of those planning any of these activities was also planning to apply for finance, compared to 8% of SMEs with no activities planned.

Source: SME Web

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Personal savings keeping two in five UK start-ups in business

Two in five (39%) small business start-ups say they have raided personal savings to keep their business afloat in the past year, according to new research from Hitachi Capital Business Finance.

As the start of 2018 marks a decade since the banking crisis and a prolonged period of cautious high street lending to small businesses, the new research suggests many UK small businesses are not turning to high street lenders to support their business – fuelled perhaps by the broadening issues around trust. Start-ups (businesses that are less than 5 years old) are almost twice as likely to use personal money as businesses that have been trading for 10 years or more (22%). In addition, the number of start-ups that have also turned to family members for a loan has increased from 10 per cent to 15 per cent over the last 18 months.

The findings suggest that even with the plethora of alternative finance options readily available today, many small business owners are not looking beyond their high street lender at the wide range of finance options available to them.

The reliance on personal finance over specialist finance is put into sharp focus given start-up businesses have ambitious plans for growth and expansion in the next three months. Compared to older businesses (that have been trading for a decade or more), start-ups are four times more likely to predict significant business growth in the next three months (14% Vs. 3%). Furthermore, to power this growth they are also more likely to be looking to expand into new markets (21% Vs. 16%); to invest in new equipment (17% Vs. 9%); to hire staff (16% Vs. 13%), and to move to a larger location (9% Vs. 3%).

Forms of finance used by small businesses over the last 12 months.

Start up (trading less than 5 years) Small business average
Own money/ cash 39% 28%
Money from family members  (i.e. either gifts or loan) 15% 9%
Overdraft 11% 15%
Government support (i.e. grants, finance loans, business support) 5% 3%
Standard business bank loan 5% 8%
Invoice finance 4% 4%
Finance lease 3% 4%
Peer to peer lending 3% 3%
Hire purchase 3% 3%
Borrowing from the business 3% 2%
Operating lease 2% 2%

In addition, owners of start-up businesses are far more likely to say that worrying about cash flow management keeps them awake at night (29 per cent compared to 19 per cent of owners of older businesses). This is probably explained by the combination of having bold expansion plans but not seeking external help on finding the right kind of funding.

Gavin Wraith-Carter, Managing Director at Hitachi Capital Business Finance commented: “It seems hard to believe that the banking crisis was a decade ago but the knock on effect of high street lenders being very cautious with lending to SMEs shows itself in this new study. The issue is not one of small businesses being turned down for finance, it is the fact too many start-ups do not trust institutions to, therefore are not tuning to them for financial help. Ten years on, my concern is there may be a widely held view by small businesses that high street lenders will just say ‘no’.”

Source: London Loves Business

SMEs
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Britain’s SMEs Facing Triple Challenge Warns CYBG

Britain’s SMEs have recorded the worst business health reading since 2014, as rising business costs, a dip in confidence, lower net business creation and a lack of borrowing are taking their toll, according to the latest research by CYBG in partnership with the Centre for Business and Economics Research (Cebr).

CYBG’s quarterly SME Health Check Index dropped to a score of 42.0[1], down 48% since 2014 and the fifth consecutive quarterly fall[2], suggesting a worsening business and macroeconomic environment since the EU Referendum in June 2016 and the ongoing Brexit negotiations.

David Duffy, CEO of CYBG, said:

“SMEs are the lifeblood of the UK, helping to drive growth, create jobs and sustain economic health. But SME confidence appears to be in short supply as many small firms are seeing rising business costs alongside continuing skills shortages.

“Businesses are scaling back their investment and borrowing due to the wider economic uncertainty, contributing to the decline in the Index. The Government’s business rate changes in last November’s budget were appreciated, but in the current environment, SMEs would welcome more incentives to address skills shortages or further tax reductions to manage costs and restore confidence.”

Representing 5.7 million enterprises, or 99.9% of total businesses in the private sector with a combined turnover of £1.9 trillion, the UK’s SMEs are unquestionably the heartbeat of the national economy. However, they are facing three key challenges, namely:

1. Rising business costs hindering growth: According to the Index, the costs faced by the UK’s SMEs grew at an annual rate of 2.6% in the fourth quarter of 2017, with one of the key drivers being a rise in employee costs, suggesting historically low unemployment may be beginning to push up wages.

The rise in business costs is hampering SMEs’ growth plans, and according to new research by YouGov – conducted on behalf of CYBG – almost a fifth (19%) of SMEs, representing over one million, say rising business costs have greatly hindered the success of their businesses. Of those, 42% said it has resulted in lower levels of investment back in the business; 35% have been unable to build up cash reserves; and, 28% said it has caused an inability to hire new staff.

2. SMEs‘ dip in business confidence impacting investment : A key driver behind the Index fall, figures show that SMEs are less confident and borrowing less, with lending down 3.7% to £92.5 billion in the year to the end of Q3 2017, the largest drop since the Index began in 2014. In terms of the last quarter for which data is available (Q2 to Q3 2017), bank lending to SMEs fell by £1.9 billion, or 2% year on year.

Encouragingly, UK Finance data published at the end of February shows that lending to SMEs has stabilised in the final quarter of 2017, but firms delaying investment decisions remains a concern.

3. UK‘s skills shortage causing annual sales loss: According to CYBG’s research with YouGov, the UK’s skills shortage is leading to an estimated £7.3bn annual loss in sales for SMEs, equivalent to approximately 252,000 new jobs on an average UK salary[3] , and worth around £97 million in corporation tax revenues for the Treasury.

The research shows more than half (55%) the UK’s SMEs – representing 3.1 million companies[4]  – believe the failure in finding the right talent is impacting on the bottom line.

These firms say, on average, they are losing 18% – almost one-fifth – of potential annual revenue due to the skills shortage. According to calculations by Cebr, a leading economic think tank, this skills shortage leads to a £7.3 billion loss every year for Britain’s SMEs.

Relatively new and medium-sized companies say they are being hurt most by the inability to find the right staff, with three in five companies employing 50-99 employees or 2-5 years old particularly feeling the strain, suggesting that the skills shortage is threatening the very companies that are likely to be disproportionately responsible for the UK’s future growth.

Amongst those SMEs that have not been able to access the relevant skills, almost a third (32%) claim that they have been unable to grow their business due to the skills shortage.

As CYBG’s Index shows, the net balance of SMEs operating below capacity increased in Q4 2017 largely as a result of the UK’s tight labour market where the unemployment rate is at a historically low 4.4% and employment at a record 75.2%.

SMEs call for incentives and tax cuts

To help address these challenges, SMEs surveyed in the YouGov poll have identified a range of changes that could help alleviate the strain of rising business costs – around 20% of all SMEs believe that either a cut in VAT or further Corporation Tax relief would deliver the biggest benefit in the current climate.

While the Government has already made changes to business rates to support SMEs, 20% of SMEs employing up to 100 people state that further business rate relief could help most to alleviate the pressure of increased costs (compared to just 11% of larger SMEs – 100-249 employees).

On skills, almost 40% of SMEs said that an incentive for employers to invest in existing employee training could help bridge current skills gaps. An equal amount suggested corporate tax incentives for training.

Among the smallest SMEs employing up to 20 employees, 42% say they would like to see an increased personal tax allowance for individuals investing in their own training and skills development.

References

1. The Index includes measures that can be directly linked to SME performance, as well as components that relate to the wider economy. A score of 100 would indicate maximum improvements across the SME Health Check Index’s eight indicators (business costs, capacity, employment, GDP, lending to SMEs, net business creation, revenue and SME business confidence).

2. The SME Health Check Index fell from 48.4 in the third quarter of 2017 to 42.0 in Q4 2017

3. Average UK gross salary was £29,009 in 2017, according to the Annual Survey of Hours and Earnings (ASHE)

4. There are 5.7 million private sector businesses at the start of 2017 – Business Populations (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/663235/bpe_2017_statistical_release.pdf ), 30 November 2017

SOURCE CYBG

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55 per cent of UK SMEs unable to access all funding needed to grow

Research from Liberis, a leading small business finance provider, published today, 21st February, revealed that over half of UK businesses are unable to access the funding needed to grow; with the main hindering factor being a lack of education or understanding of their funding options. With falling SME confidence in the economy and mounting concerns over costs given the relative weakness of the sterling, Liberis strongly urges the UK to better support its small business community.

The lifeblood of the UK economy, SMEs contribute more than £200bn a year; with this number expected to grow by almost 20 per cent by 2025. Yet, without a vital cash injection, this 2025 vision will be severely stinted.

Hindering growth opportunities, this lag in SME development may in turn negatively impact the economy. Liberis therefore believes it is crucial to ensure better understanding on how to navigate the perceived minefield of funding options. Small business education is desperately required to increase awareness levels of the process; greatly benefiting both businesses and economy alike. Such movement has been reinforced in a recent report from the British Business Bank, in which the UK Government backed organisation pledges its dedication to a more targeted educational campaign on the topic of SME finance.

While 62 per cent of UK SMEs said they need funding to grow and expand, but 57 per cent of SMEs were unsure which provider to obtain funding from and 53 per cent did not have a set amount in mind when looking to access finance.

Liberis found 22 per cent of businesses require funding to maintain business as usual, while 5 per cent need funding to survive past the first year of business. Speed of funding has been identified as integral to achieving this growth. Other findings of the report showed an increase in the popularity of crowdfunding as a source, with 10 per cent of UK SMEs looking to use this as a means for funding in the next two years.

Commenting on the report, Rob Straathof, CEO at Liberis, said: ‘These findings have opened our eyes to a lack of confidence and awareness among SMEs in how to correctly secure the funding they so desperately need. Funding will continue to be a hot topic for the small business community, but urgent action and collaboration is crucial to prevent resulting damage to the UK economy. Without sufficient financial education and support, the UK’s business ambitions will be severely affected but by ensuring they have the correct financial understanding, we can help secure and strengthen their livelihood; fast-tracking their ambitions.’

Source: London Loves Business

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Small firms look askance at bank borrowing as alternative finance models rise

Smaller British businesses are increasingly wary of bank borrowing even if it means forgoing growth, according to new data to be published today.

Some 70 per cent of small British firms are willing to avoid borrowing money, even if it means giving up on growth, the data from the British Business Bank will show.

Demand for bank loans from smaller firms fell to its lowest since comparable data was first collected in 2011, with only 1.7 per cent of small firms seeking new loans.

However, Keith Morgan, head of the government-owned BBB, said the UK has a “thriving start-up and growth culture”, but that firms need to be able to access finance to be able to move to a higher gear of growth.

“They do have to have access to long-term, patient capital,” Morgan said. “We certainly can’t be complacent in our current position and we need to invest in these companies.”

The BBB recently stepped in to offer support to the small firms which were contractors of the collapsed construction and outsourcing firm Carillion. At the start of the month it said it will work with private-sector lenders to enable them to offer £100m in loans.

“We can point very firmly to evidence that this type of intervention works,” Morgan said.

He also hailed the “encouraging growth” in alternative finance models to the traditional banks as a sign of increased choice for smaller firms.

“Small businesses are prepared to shop around more”, he said, with the internet and the recent proliferation of non-traditional lenders aiding the increase in competition.

Peer-to-peer lending surged by over 50 per cent in 2017, while asset finance enjoyed double-digit growth for the fifth year in a row.

Firms are also seeing increased success for equity fundraising, with a 79 per cent jump in the first three quarters of 2017. While the amounts raised were skewed towards the biggest start-ups, the number of equity fundraising deals also rose by 12 per cent, after dipping in 2016.

Source: City A.M.

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National investment bank needed to boost SME lending, think tank says

Britain should set up a state-backed investment bank to focus on small business lending as part of efforts to tackle poor productivity, a think tank has urged.

A new report by Civitas argues that the creation of a new “national investment bank” will address the “market failure” that has led to a lack of long-term investment in SMEs.

The new lender could be independently financed at no ongoing cost to the taxpayer, Civitas claims, while boosting current low levels of investment and helping to raise productivity.

Civitas economist Justin Protts also derided the Government-backed British Business Bank, which he said does “incredibly little” to support business when compared with development banks in Europe, and is “not fit for purpose”.

He added: “The UK economy is not operating as it should. The output of each worker is barely increasing and failure to increase our productivity since the financial crisis has been holding back growth.

“There is no doubt that low investment, particularly in enterprise, is a cause of the UK’s current economic woes and a significant part of that problem is the failure of the banks to lend to SMEs, which make up 99% of businesses in the UK.”

“If the Government is going to seriously tackle the challenges of low investment and productivity then they must go further and create a new UK investment bank which can be mandated to provide the longer-term finance needed by SMEs to invest, grow and increase the UK’s productivity.”

The think tank pointed to figures showing that investment in the UK has fallen from about a quarter of GDP in 1990, in line with other developed economies, to just over 16%, well below that of most advanced countries.

Civitas said this is in large part driven by banks failing to invest in SMEs, even when there is demand from creditworthy businesses, with lenders favouring easier returns from alternative investments.

Loans to business by banks as a proportion of their domestic lending have declined from 31% in 1988 to 8% in 2016, according to the report.

Mr Protts highlighted the success of similar initiatives in Germany and the US.

“The experiences of institutions elsewhere, particularly of Germany’s KfW and the US’s Small Business Administration, show that government-owned investment institutions can play an important role in providing the sort of business investment the UK is lacking and at no ongoing cost to the taxpayer.”

The British Business Bank’s automated phone system did not allow the Press Association to request comment.

Labour welcomed the report, with the party’s shadow chief secretary to the Treasury Peter Dowd saying: “This report… helps build the case Labour has been making for a new National Investment Bank. The creation of this new bank will be crucial for targeting lending at smaller businesses who are being let down by our current financial system.

“Labour is committed to setting up a new National Investment Bank alongside a network of regional development banks to build a high-wage, high-productivity economy.”

A Department for Business, Energy and Industrial Strategy spokeswoman said: “This Government’s Industrial Strategy is building a Britain that invests in the skills, industries and infrastructure of the future.

“With over a thousand businesses starting everyday in Britain, the British Business Bank has provided over £4bn to SMEs, and is unlocking a further over £20 billion of new investment for small businesses.”

Source: Hereford Times