By Daniel Hunter
The CBI today (Monday) called on small and medium-sized firms (SMEs) to consider the broad range of finance options available to help them grow, including asset-based lending, equity investment and peer-to-peer lending.
Launching a new alternative finance guide, Ripe for the picking, the CBI highlighted research showing that high-growth medium-sized businesses could be worth up to an additional £20 billion to the economy by 2020. It comes as a GE Capital report shows that SMEs plan to spend £51 billion over the next 12 months, but will need the right funding to realise their potential.
The CBI said that UK banks are the source of nearly 80% of all credit to growing businesses, however, the financial crisis has put the UK on an irreversible path to a ‘new normal’ in financing. Regulatory reform, balance sheet restructuring and a more realistic pricing of risk, mean that traditional bank debt will no longer be the right finance for all businesses, all of the time.
“The UK’s small and medium-sized businesses are the backbone of our economy so ensuring they can access the capital they need to grow and create jobs is critical," Katja Hall, CBI Chief Policy Director, said.
“Banks will continue to be a vital source of finance but it’s not a one-size-fits-all solution, and we’re encouraging growing firms to open their eyes to the broad range of funding options on the market.
“Growing businesses could look to corporate venturing, for example, or to issue retail bonds, like Hotel Chocolat did with its innovative chocolate bonds.”
Vince Cable, Secretary of State for Business, said: "Britain’s businesses cannot grow, export and innovate without proper access to bank credit. But they also need alternatives when looking for finance, as a traditional bank loan might not always be the answer.
"The CBI's guide will help raise awareness of the different types of finance available, and how alternative credit channels can introduce more competition to give SMEs choice. The Government wants to see a shift in the market structure towards non-bank lending, and through the business bank is deploying £300 million of the £1 billion allocated to the initiative to invest alongside the private sector in new entrants and the growth of smaller lenders."
The CBI alternative finance guide highlights some of the choices available, including:
- Asset-based lending (like invoice financing)
- Supply chain finance
- Trade finance
- Peer-to-peer and crowd funding
- Retail bond market
- Self-issued retail bonds
- Private placements
- Business Angels
- Venture Capital
- Corporate venturing
- Business Growth Fund
- Private equity
- Public equity markets.
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