British Business Bank in pledge to tackle SME funding hurdles

Upcoming initiatives will address three critical challenges to the SME community, says government-backed, independently run business accelerator

SMEs are not gaining the traction they should in the UK economy because of three major challenges, according to the British Business Bank.

In a new report, the government-backed, independently run startup accelerator argues that the market for small-business lending remains firmly in recovery mode, with around 350,000 new ventures registering in the past year, and the total SME population hitting a record high of 5.4 million.

However, despite these achievements, urgent progress still needs to be made in three vital areas:

1. Not enough businesses are scaling up OECD rankings place the UK near the bottom of the global pile for the percentage of businesses that grow past the 10-employees mark after three years of operation. That shortcoming has created a productivity drag, and a need to boost the number of SMEs with export power.
2. Funding options are evolving too slowly The four largest banks (Barclays, Lloyds, the Royal Bank of Scotland and HSBC) still accounted for 80% of the small-business loans market in 2014. As such, the diversification of finance avenues must be sped up to drive competition and choice.
3. Grassroots growth is unbalanced An overwhelming 71% of total SME equity investment is dedicated to companies based in London and the Southeast, putting other UK regions at a serious disadvantage. That uneven financial landscape must be adjusted to ensure that successful ventures can stem from every part of the land.

British Business Bank CEO Keith Morgan announced that a series of upcoming initiatives from his organisation would help to address these critical points. “In relation to the specific challenges outlined in the report,” he said, “the Bank is well placed to respond and a number of our interventions have produced positive results.

“We are increasing our early-stage equity interventions, through our Angel CoFund and Enterprise Capital Funds, to support businesses [that want] to scale up. In addition, we will continue to drive greater market diversity as we support new entrants with our investment programme, committing £353m of support to new and alternative suppliers of finance.”

Morgan added: “Looking ahead, we have further exciting programmes in the pipeline. We are piloting our innovative Help to Grow (PDF), a £100m programme to support fast-growth businesses [that are aiming to] realise their potential. And we will play our part in supporting growth in the regions – most notably through the new £400m Northern Powerhouse Investment Fund announced by the chancellor in the autumn statement.

“I believe that, alongside our existing programmes, these new initiatives will deliver further improvements in the UK’s finance markets, making them more dynamic and diverse.”

Welcoming the report, small businesses minster Anna Soubry said: “Small firms are the engine room of our country and it’s great to see this report recognising their hard work and growth. Even though the lending landscape is improving, I’m well aware access to finance remains a big issue, and want to see even more help for small firms looking to invest and create jobs for people.”

She added: “The government is taking steps to increase the availability of alternative lenders like peer-to-peer platforms and challenger banks, through our support for the British Business Bank.”

Brainchild of former Lib Dem business secretary Vince Cable, the British Business Bank was unveiled as a concept in 2012 and formally launched in late 2014, with initial capitalisation of £1.25bn.

Download the full Small Business Finance Markets Report 2015/16.