Small businesses face ‘permanent gap’ in access to bank lending.
The Forum of Private Business (FPB) is calling for bank lending to be made more accessible and affordable following a report identifying a ‘permanent gap’ in small business finance.
In its submission to the Rowland’s Growth Capital Review, which highlighted a major shortfall in growth capital for businesses seeking between £2m – £10m, the FPB called for a range of finance options to be made available for more small firms, including those requiring significantly less capital.
Following the review, which was led by venture capital expert Christopher Rowlands and included ‘Dragons’ Den’ entrepreneur James Caan, the Government announced plans to introduce a new growth capital fund to plug the gap. In addition, it revealed there will be a £1 billion innovation fund for technology start-ups.
However, the FPB believes that the banks must also play their part by increasing the availability of lending – particularly investment of between £100,000 and £500,000, which is the level typically required by most small businesses. The FPB is also arguing that the steep cost of bank finance must be reduced without delay.
On 3rd December 2009 the FPB presented its recent small business finance research at a meeting of the Small Business Finance Forum amid concerns that a lack of affordable credit will leave many businesses unable to expand and cope with an upturn in trade as the country heads out of recession.
“We are entering a key period,” said the FPB’s Policy Representative Matt Goodman, who attended the meeting. “Firms are likely to require finance from a greater range of sources over the next year. Growth funding is certainly welcome but must be accompanied by more sustainable banking lending and public sector support – including a replacement for the Enterprise Finance Guarantee (EFG) – so that they are able to take full advantage of future opportunities.”
In all, 47% of members responding to the FPB’s quarterly Referendum survey, entitled ‘Preparing for Growth’ said they expect to see an increase in trade in the next 12 months, with 13% already experiencing an upturn in orders, 45% intending to expand their businesses and 37% expecting to recruit additional staff by September 2010.
However, 77% said that the terms and conditions of lending – including demands for personal guarantees – have deteriorated during the past year.
Just 4% of FPB members said they have seen access to working capital improve in 2009, with 58% saying it has worsened. In addition, 65% said it has become harder to access finance for growth and 68% reported that the cost of finance has increased.
“There are still small businesses unable to access the finance they need but affordability is now the key issue,” added Mr Goodman. “The growth capital and hi-tech start-up funds announced by the Government will be significant steps forward, but the steep cost of traditional bank lending remains a huge barrier for many viable yet struggling firms.”
When asked how the issue of finance could be improved, 36% of small business owners surveyed by the FPB said they wanted to see a reduction in the cost of lending. Further, 27% said greater flexibility in negotiating and adapting terms and conditions to meet the changing needs of their business would be welcome.
Additionally, 26% called for more simplicity in lending arrangements, without multiple party deals, and 22% wanted to see a reduction in the time they spent complying with the requirements of the funding. Greater competition and choice in the marketplace was also listed as desirable by 20% of respondents.