IN THE CURRENT climate, we are well aware that one of the main inhibitors to growth and recovery in the SME market is access to funding. This manifests itself in a number of ways – from businesses being reluctant to approach prospective finders, to finding an investor with the necessary funds to invest.
Accountants working with SMEs know that finding finance, almost at any cost, remains a key issue for the majority, despite the many measures that have been introduced to improve the situation.
Too many SMEs still find traditional access to bank credit out with their reach. With the current relatively high cost of capital for banks, which has had the inevitable knock on effect on the cost of credit for SMEs, alternatives to traditional bank finance must be developed. This is particularly important for businesses at a pre-revenue or pre-profit stage, for which loan finance may not be the right solution in the short term.
The current lending system can be damaging for businesses in early stage growth and those that have hit an understandable temporary rough patch post-recession.
Against this backdrop, chancellor George Osborne has thrown a credit line to small and medium-sized companies after heralding a new programme of “credit easing” in which the Treasury will support business lending. At the time of going to press, the precise detail of what this really means remains sketchy.
This is certainly recognition by the government that they need to provide more assistance and support to SMEs in order for them to contribute to the economic recovery in the manner and to the extent that the government expects them to.
It was, however, what wasn’t said as part of this announcement that spoke volumes. Missing was mention of the mechanisms the government already has as its disposal to help get finance to SMEs – one of which is the Enterprise Finance Guarantee (EFG). Perhaps this is because EFG is not seen as working as effectively as it should be, with implementation issues in how lenders are interpreting the government’s intention.
It would be a welcome reprieve for SMEs if government put more focus towards making EFG work, potentially marrying or aligning it with a revamped Small Firms Loan Guarantee Scheme (SFLGS) that EFG replaced a number of years ago. SFLGS had the advantage of being available to start-up businesses, something that EFG was not designed or allowed for.
Looking more closely at how to make a hybrid EFG and SFLGS scheme work more effectively could prove to be a quicker way to get access to finance moving more quickly. It is imperative that we have solutions now and not in six months-time. By that time it will possibly be too late for a number of businesses.
While the chancellor’s idea of a bond market as part of the “credit easing” programme could be a longer-term solution, it does not inspire any immediate enthusiasm for the short term. The majority of SMEs will not be familiar with this platform and will no doubt be wary of making any moves towards it.
What is required is a detailed look at the types and sources for businesses at concept/seed-stage, pre-profit and growth and profits stage, to determine if all these stages are being adequately catered for at the present time and the right type of finance is available to those that need it. Deep down, it may be fairly self-evident where the gaps lie.
We know that SMEs may be small, but they pack a mighty economic punch which the government is well aware of – if at the very least in terms of potential voters. Accountants and advisors have a vital role to play in ensuring SMEs get strong financial advice and are guided in critical financial management techniques.
In the recent HM Treasury consultation on tax-advantaged venture capital schemes, ICAS recommended that the Treasury look to see what more could be done to help advisers (such as tax advisers, stockbrokers or wealth management firms) promote the investment opportunities, including the Enterprise Investment Scheme, to those with cash to invest in ventures.
It is important that the advisory and investment community are fully aware of what is available without falling in of FSA investment rules, or feeling inhibited from mentioning them because of professional or liability issues.
ICAS will be uniting with other leading business and professional bodies to launch further ideas for an SME funding plan to government (both at Holyrood and Westminster).ICAS believes it is clear that working together is the only way to find sensible coherent funding solutions for SMEs.
Paul Provan is assistant director of business policy at ICAS
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