Matthew Hancock MP: 4 alternatives for business finance

The Department of Business, Innovation and Skills minister explains the avenues open to businesses

We are now starting to see the recovery take hold, and this is in no small part down to the efforts of British entrepreneurs and small businesses.

We now have the highest number of businesses in the country than ever before – nearly five million – and the task for Government is to make sure the economic recovery is sustained and growth continues. From April every business will benefit from a cut of up to £2,000 in their National Insurance bill, and from April 2015, the main rate of corporation tax will be cut to 20 percent when it will be the joint lowest in the G20 and by far the lowest in the G7. These are just two ways we are making Britain the best place to start and grow a business.

But there remain barriers that we need to overcome. Chief among these is the problem in helping smaller business access the finance they need.

In the UK, the big banks dominate the small and medium sized business lending market. This has been starkly revealed since the financial crash, when the banks all but stopped lending, preventing those small and medium sized enterprises (SMEs) from getting the loans they need to fund growth and investment.

Nearly four-fifths of all SME banking is held by the big four banks in the UK, and this means the many SMEs turned away from the banks have been resorting to using their own savings for investment. More worryingly, a recent survey found that 40% of SMEs have turned to credit cards to fund growth.

Not only is this holding back smaller businesses from achieving their true potential, it’s harming our economic growth prospects. We know the desire to start and grow a business is there – we had a record number of businesses last year.

That’s why we’ve brought in a number of measures to tackle this problem:

1. British Business Bank

We need to get away from our reliance on a small group of high street banks. The new state-backed British Business Bank is specifically tasked with promoting more competition and diversity in the SME lending market. It doesn’t lend directly to businesses, but by investing in new providers like peer-to-peer lenders, invoice financing lenders and even new banks, it is ensuring SMEs have more options when seeking finance. For example, in February the Business Bank invested £40 million into peer-to-peer lender Funding Circle, and this is expected to support £450 million of lending to small business.

2. Start Up Loans

The Start Up Loans scheme is just one such scheme introduced by the government to bridge the SME lending gap. It offers loans, mentoring and support to start-ups. The demand for Start Up Loans shows no sign of letting up and to date it has lent £74.7m and backed 14,840 businesses.

3. Enterprise Finance Guarantee

While promoting more non-bank and alternative sources of finance is a long-term objective, we obviously want and need the banks to be doing more in the here and now. If you’re a business needing finance to invest, don’t be discouraged from trying the banks.

We are encouraging the banks to lend where they might otherwise decline a business by offering them a guarantee. To date, we have supported over 20,000 loans to SMEs through our Enterprise Finance Guarantee scheme, meaning viable small businesses which the bank would have turned down, have secured loans worth £2.1 billion.

4. Growth Accelerator

For businesses with high-growth potential, the Growth Accelerator scheme is another option. Eligible businesses have fewer than 250 employees and a turnover less than £40 million. Each business on the service receives a bespoke package of support, based on its own individual needs, determined in conjunction with their Growth Manager.  This could include leadership and management training, how to access finance or how to commercialise innovation. The aim is for the service to deliver £2.2 billion of economic growth and create 55,000 new jobs.

Where to go for more

Our ‘Business Is GREAT’ campaign aims to raise awareness and the website brings together the whole spectrum of assistance – from securing suitable finance to advice on exporting. It is also full of fantastic case-studies of small businesses and entrepreneurs who can provide inspiration to others who might be in a similar situation. Government can help get the finance markets fixed, but ultimately our economy depends on our small business owners having the confidence to take the next step on their journey.

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Readers' comments (1)

  • More debt for small business is not the answer. It's cash that's needed through early payment!

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