Leading Experts discuss Access to Finance by SMEs
Access to finance by Small and Medium-sized Enterprises (SMEs) and its impact on the country’s prosperity is one of the longest running national debates in the UK. Three leading experts in the field came together at a seminar hosted by De Montfort University on 4th May 2011 to review path-breaking research over the past decade and the way that it has influenced banking and government policy particularly in the aftermath of the credit crisis. The new, quarterly survey of SMEs and their access to finance was also discussed by an audience of over 30 researchers and practitioners.
From left to right: Professor David Wilson; Professor Monder Ram; Professor Richard Roberts; Dr Stuart Fraser; Mike Young
Dr. Stuart Fraser of the Warwick Business School gave an overview of the UK Survey of SME Finances (UKSMEF) which has conducted 5 surveys since 2004. He focused on some of the key issues revealed in these surveys including the role of ‘financial delinquency’ (unauthorised overdraft borrowing and/or missed loan repayments) on reducing Access to Finance and the importance of financial discouragement whereby firms don’t apply for finance because they believe they will be rejected. This discouragement has had a negative impact on growth rates of firms according to available evidence. Dr. Fraser also outlined the evidence from the surveys that good, long term small business relationships with banks improve the availability of finance and probably lead to better lending terms. The surveys had also shown that financial discouragement and loan rejection rates have increased following the credit crisis with a detrimental impact on sales growth. He drew out a number of policy implications including the need for more, better quality business mentoring; the importance of the Enterprise Finance Guarantee scheme; and the critical importance of improving financial relationships.
Professor Richard Roberts, SME Market Analysis Director of Barclays Bank and Visiting Professor at De Montfort University showed how the UKSMEF research had influenced the policy and practice of both banks and the government. He provided three examples from recent history:
- the hotly debated topic of whether the decline in finance to SMEs since the credit crisis was a result of demand or supply factors (the answer is both);
- the deeper understanding that has been gained of why certain groups face greater loan denial rates and, therefore, an improved ability to better tackle these reasons; and
- action taken to correct the increase in loan denials by banks’ computer models since the credit crisis which was a major reason for establishing the Enterprise Finance Guarantee scheme.
He concluded that, unlike the long history of research into access to finance by SMEs, recent research has produced conclusions and recommendations in time to have an impact upon current problems and issues.
The seminar concluded with a description by Mike Young, Deputy Chair of the Access to Finance Advisory Group of the Department of Business, Innovation and Skills, on the newly launched quarterly survey of 5,000 SMEs and financial issues. This will be an independent survey with independent analyses of the data generated although it is being funding by the British Banking Association. As in most cases different firms will be interviewed each quarter, data will be available on approximately 20,000 SMEs a year allowing the production of an annual regional report which will be of value to local business, bank and public sector partnerships. The first results will be available in July this year.
The seminar was the second in the De Montfort University Small Firms Seminar series which is organised by CREME. A longer report on this event will be available shortly. Please contact Liz Frost on efrost@dmu.ac.uk for further information.
CREME's Blog 
Whilst the banks aren’t necessarily helping with making funds available, I think sometimes there is an expectation by SMEs that money should just be handed out on a plate without a solid and reliable business plan that supports the funding requirement. I think this echoes an opinion that Lord Sugar had on SMEs and obtaining funds.
What is encouraging is that innovative funding options are appearing; providing alternative options to off the shelf loans from banks.
Recently I have come across interest free loans (yes really) with the proviso that some equity is given away and of course other associated fees; but significantly ‘cheaper’ than High Street borrowing. Also an online trading platform for invoice discounting where interest rates can be as low as 0.9% and you only need ‘sell’ a single invoice.
With other such schemes like Microfunding and other web based loan companies, there are options available that are viable alternatives for SMEs and at reasonable rates in most cases.
Whilst the bank probably aren’t that helpful when it comes to funding SMEs, I also think there is an expectation of SMEs that money should be given to them on a plate without a solid and viable business plan backing up the requirement. I think this echoes some recent views expressed by Lord Sugar.
What is encouraging is the availability of new types of finance that were previously not open to SMEs looking for a cash injection.
One such offering was an interest free loan (yes really) with a minimum of £500k entry level – there is a requirement for 10% equity and associated fees/charges to access such funding (based on a solid business plan) but a significantly ‘cheaper’ way to borrow versus high Street lending.
Another innovative way of raising finance, launched earlier this year, is an online trading platform for invoice discounting; achieving interest rates in some cases as low as 0.9% – allowing single invoice, no tie in, no ongoing admin charges, no PGs and fast turnaround of funds.
So with other emerging routes to finance, I think that things are looking up for the SME!
I would like to put focus on transnational diaspora entrepreneurship, where the dependance on finance from two countries can be countered through new forms of finance forms and collaboration.
Thank you for a great post.
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