Lack of capital stifling success of small firms

OVER the last hundred years, business has seen some dramatic changes. Advances in technology, expanded access to education, and an increasingly interconnected world have played their part in seeing our businesses continually evolve and search for new ways to do things.

It is this innovation upon which progress is built.

But one issue that has remained unchanged since the early twentieth century is the difficulty UK businesses face in accessing finance.

All too often, we see our fastest growing, most dynamic companies – those with the potential to become global champions – reaching a plateau or selling up because they can’t get the capital they need to grow.

This is why, compared with other nations, our mid-sized business sector is underdeveloped, damaging individual firms, and also our broader economy.

It is part of the reason for our well documented productivity challenge, it undermines economic growth, and it stunts business appetite to export.

What small or mid- sized company is going to take the leap into new, overseas markets if it cannot rely on getting the finance needed to weather expansion and a voyage into the unknown?

When it comes to business finance, the UK has deeprooted, systemic failings. As a result, we are expecting our companies and entrepreneurs to scale up their businesses with one arm tied behind their back. Is it any wonder, therefore, that we struggle for a British Samsung, Google or Microsoft?

The good news is, we can do something about it. Other countries have found effective ways to support their growing and mid-sized businesses. One common denominator is a strong, state-backed business bank, for example the KFW in Germany and the Business Development Bank in Canada.

This isn’t a new idea and Britain tried it in the past, initially in 1945. It has taken some time, but the current incarnation of a British Business Bank, formed just a few years ago, is starting to make a difference.

Programmes such as the £1bn ‘Help to Grow’ scheme - which the Prime Minister announced at the British Chambers of Commerce annual conference earlier this year – could make a real difference to fast-growing firms needing patient loan capital from hundreds of thousands to around £2m.

The British Business Bank is aiding competition and providing capital where other lenders fear to tread. But for it to have a lasting impact on Britain’s business growth and productivity, it too needs to be ‘scaled-up’ and expanded.

Ministers in Britain have been hesitant to do this, expressing anxiety about the appropriate scale of state subsidy to the Business Bank.

Our competitors in Germany do not suffer this shyness, and back their business bank to the hilt. In fact, Kfw will distribute €60bn this year with much of its work free of EU state aid rules. If the Germans can do it, so should we.

That is not to say that traditional banks will no longer have a big role to play. They will continue to account for the majority of business lending, ceding some ground to new challengers and specialist finance houses with a competitive offer.

Business finance is a complicated world. To help companies make informed choices about their finance options, the BCC and the Federation of Small Businesses have developed a ground-breaking new resource: the Business Banking Insight website.

Akin to a Trip Advisor for business banking services, the independent website gets companies to rate their banking providers and specific services they’ve used, helping other companies to identify which products might be best for them.

ACCESS to finance, or the lack of it, has been the black heart at the centre of the UK economy for far too long. Working together, government, banks, finance providers and businesses can solve this crisis.

As every businessperson knows, there comes a point where you have to take a risk, and put your money where your mouth is. Now is such a moment for the Government.

The payback will go far beyond the loans themselves – with more jobs, bigger profits, higher tax receipts and a more productive and successful UK.