Member Article

SME financing: there is another way

Rupert Lee-Browne, CEO of Caxton Fx, shares his thoughts on what the Autumn Statement spells for SMEs.

On November 29, George Osborne presented his Autumn Statement, which on the whole made for rather gloomy reading.

Economic growth was revised down, the Government is to borrow £111bn more than expected over the next five years and the rise in the state pension age to 67 is going to be brought forward.

But there were some positives at the end of the speech as the Chancellor set out plans to boost lending opportunities for Britain’s SMEs.

However, while I welcome Osborne’s efforts, in all honesty, I don’t think he has gone far enough.

SMEs are the backbone of the economy as they represent more than 50% of GDP and UK employers. Big business and the public sector do not come close in terms of output or jobs and it will therefore be the SME sector that will revive our economic fortunes.

Current conditions for SMEs are dire and one of the key reasons for this is that SMEs find it difficult to access funding in order to continue to exist and grow.

Over the last few years, the Government has relied on the banks to lend to SMEs, something which they are failing to do at adequate levels. Despite the Project Merlin scheme, banks are keeping their cheque books firmly shut because they want to ensure their cash flows are in shape, they prefer to invest in liquid markets and safe SMEs and lastly, they are put-off by rising costs to lend to SMEs.

Its pretty obvious the banks wont change their lending criteria and what the Government needs to do is create an environment that supports SMEs, involving the Big Society.

As a first port of call, the Government would do well to encourage a regulatory environment that suits retail bonds. The high street banks are currently sitting on approximately £1trn in deposits, which are earning relatively little interest and in essence, this money is not doing very much at all.

I would therefore like to see the Government help unlock this money by encouraging society to invest in SMEs and not simply take the safe option and leave their money in the banks.

At Caxton FX, we launched our own retail bond in the summer, offering a very generous return on investments, and as a result we raised a significant amount of money. It was encouraging to see so many people invest in our business and the money raised will be put to good use in order to grow the company.

Big companies also have their part to play. For instance they could sign up to a code of conduct whereby they will pay SMEs on time, which will reverse the trend of SMEs having their credit flow squeezed.

Im also a big supporter of Peer to Peer lending and Funding Circle is a great scheme, which enables people to lend directly to small businesses in the UK, eliminating the high cost and complexity of banks.

SMEs live and die on cash flow and if the Government and the banks do not free up money to help revive the fortunes of Britains SMEs, we could be looking at further economic hardship.

This was posted in Bdaily's Members' News section by Tom Keighley .