Save content
Have you found this content useful? Use the button above to save it to your profile.

Improving Access to Finance?

3rd Feb 2016
Save content
Have you found this content useful? Use the button above to save it to your profile.

The question of improving access to finance has challenged policymakers for many years. This is why the Parliamentary Select Committee for Business, Innovation and Skills is looking at how the landscape for accessing business funding has developed since the end of the financial crisis, and the policy improvements government could make to boost the number of successful and high-growth businesses.

Here at The Alternative Business Funding (ABF) portal, we submitted our views and recommendations to the committee last week. Over the last five years, one of our main observations was that the government’s decision to create a British Business Bank (BBB) has been transformative in turning policy into action. The DNA of the BBB has been built around understanding the requirements of small business, and has led to some successful funding initiatives including The Start-up Loans Scheme, the Business Finance Partnership (BFP), the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS). These are all funding solutions that are now recommended to SMEs by a growing number of accountants in practice, and they have all contributed to boosting the economic recovery and growth of the UK Economy.

Not surprisingly, the Mandated Bank Referral System was central to our recommendations. This is because it has massively changed the dialogue between the banks and the alternative funding sector – already creating a more collaborative funding environment. But, it has now been 18 months since the legislative consultation was complete, and there is still no firm 'go live' date. The Small Business Minister commented in a Sunday Times interview last month, that after this length of time 'the referral process better bloody work'. This sentiment is definitely shared by us here at ABF.

It’s all about the timing

To be successful however, the timing of the referral needs to be right. As the ICAEW publication, economia highlighted when we launched ABF, an estimated 250,000 businesses have an application for some form of bank funding turned down every year, so it is crucial that the maximum number of declined businesses are fast-tracked to alternative funders.

During all the BIS and Treasury working group meetings held to design this process we, and all the other stakeholders from the non-bank sector, stressed that at the very least the existence of a referrals regime should be flagged to an SME at the outset of their engagement with a bank when seeking funding. They should be made aware that if, at any point, it seems likely that their application for credit will fail, they have the right to ask the bank to refer their details to the alternative funding portals. Thus the SME is interacting with the bank on an informed and empowered basis and is aware that other options exist, which can only drive competition.

The problem here is not with the process, it is with the timing. Different banks measure a rejection in different ways (in writing, at source, informal etc).  Additionally, by focusing on rejected applicants there is a danger of creating a ‘ghettoised’ population of SME owners that are labelled as only suitable for the alternative funding markets, not the bank.  This could be hugely damaging to competition going forward.

Unfortunately, we now understand that the banks will only have to refer to the mandated referral process at the point of formal rejection, which captures a much smaller percentage of the overall number of SMEs seeking finance.

Losing the desire for change

At the beginning of the consultation period, and all the way through the working party programme, there appeared to be a genuine desire for change. As we get closer to implementation and the 'go live' point, the dialogue and messaging has shifted from delivering change to avoiding any possibility of mistakes and thus ministerial embarrassment.

The obvious response to this attitude is that, since we are delivering something new which nobody has done before, an element of risk, and the possible need for corrective change from time to time are inherent in the process. Trying to eliminate the possibility of any mistakes effectively neuters the whole initiative.

Having been significantly involved in the process, we have a close interest in how it is ultimately delivered, and how its successful implementation could be transformative for the way SMEs acquire funding in the future. However, now might be a good time for a 'sense check' to make sure that what we set out to do, and what we ultimately end up with, are one and the same.

.

Tags:

You might also be interested in

Replies (1)

Please login or register to join the discussion.

By JustCashflow
05th Feb 2016 14:29

Access To Finance

Excellent article byAdamTavener.

Thanks (0)