By Anil Stocker, co-founder of MarketInvoice
To build on some promising early signs of economic recovery, it is crucial that George Osborne gets the Autumn Statement right to bring back much needed confidence in UK plc.
Funding bottlenecks and red tape continue to hinder innovation and the government must do more to ensure a steady flow of finance between businesses and investors, without which the economy will continue to falter.
One eagerly anticipated aspect of the Autumn Statement will be clarification around what form Vince Cable’s Business Bank will take. Cable’s statements on the subject have so far been vague, but we can hope to hear more details on how this new bank will jump-start SME finance in the UK.
Speaking to SME owners every day through my work with MarketInvoice (a next generation finance provider I co-founded) I appreciate that obtaining finance is the most pressing problem facing CEOs and Financial Directors across the country. If the Business Bank is able to open up new ways to access capital then it could represent a very positive development.
After the slow take-up of projects designed to get the banks lending (for example the Enterprise Finance Guarantee Scheme, Project Merlin, and Funding for Lending), there is hope that this time the government will leverage private sector initiatives in order to raise competition in the banking sector. By deploying money through alternative internet-based lenders and challenger banks, the Business Bank may find a sustainable way to raise SME liquidity and, ultimately, enhance UK productivity.
Above all, it is essential that the state avoids stifling private sector innovation, which is one of few positive developments in financial services since 2008. Perhaps taking inspiration from the Small Business Administration in the USA that exists alongside a vibrant private market for finance could help avoid Government over-extending its reach. A core aim has to be increasing the range of options that small businesses have when it comes to taking external funding.
It is likely that the Autumn Statement will also bring further details on the Business Finance Partnership’s plans to distribute £100 million among alternative finance companies. As spokesperson for the Next Generation Finance Consortium, it is great to see recognition from the government of the role that alternative lenders might be able to play in business finance.
Alternative finance as an industry is already responsible for over £250 million of commercial lending every year, with some sectors growing rapidly. Injecting money into this sector is an excellent way of encouraging competition in a rapidly growing sector. Besides this, government support lends credibility to finance providers whose names remain as yet unfamiliar to many entrepreneurs.
Leaving external sources of finance aside, many SMEs have also struggled to generate revenue in the wake of the economic collapse. Recession has emptied the order books of many businesses that were struggling to meet demand five years ago. I would like to see the Autumn Statement build on the work of the UKTI, and encourage UK firms to find new customer bases in foreign markets. Becoming an exporter can be a daunting prospect, but, if successful, it can completely change a company’s fortunes. In the interests of promoting economic recovery, getting more UK businesses to trade internationally would be a great achievement.
What’s very interesting is that 20% of MarketInvoice’s users have used us to raise finance against invoices from foreign customers. These are customers in the USA, Europe, Asia, the Middle East, and even Africa. I’ve spoken to some for whom the decision to start exporting was the direct result of domestic demand stagnating as a result of the financial crisis. These companies have made a success of the endeavour, and there are great opportunities for many UK entrepreneurs to follow suit.
Financing export projects is a major challenge for many businesses. Serving customers in foreign territories can put cash flow under strain, as the time you have to wait before getting paid increases. To worsen the problem, banks are often unwilling to help companies with riskier export finance. Besides this, the red tape involved in starting to export can be a real headache, particularly for smaller SMEs. These are things that the government should aim to help with if we are to stand any hope of “exporting our way to recover.”
Ultimately, the focus of the Autumn Statement needs to be on supporting investment and growth for SMEs. There has been considerable focus on start-ups and incentives such as SEIS have been very positive in developing an entrepreneurial culture. However, whilst Silicon Roundabout may attract the headlines, it is of absolute importance that the financial needs of our start-ups three to five years down the line are not forgotten.
It is these businesses on the brink of becoming ‘medium-sized’ that will start generating revenue, employing more staff, and ultimately aiding UK growth. My fear is that long-term, structural improvements will be sacrificed for more newsworthy short-term fixes. Osborne should see this as an opportunity to re-energise a beleaguered economy, demonstrate commitment to genuinely positive disruptors within sectors such as alternative funding, and secure sustained growth not just for 2013, but for years to come.
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