Member Article

Lending and Advice

Richard Coleman of Zurich suggests that lending and advice should be two halves of the same coin.

With our return to recession and reports showing that SME borrowing costs are at their highest level since late 2009, alongside new regulations such as Basel III highlighting the realities of SME lending. It is now more vital than ever that the UK SME sector gets the assistance it needs. However, while access to finance and borrowing costs are an essential part of an SME growth lifecycle, this is only one part of the story.

The regulatory and legal environment has an important role to play, together with the state of the UK SME
sector. A recent example would be the government’s income tax relief cap. While much has been reported on the effect of this on charities, the effect on SMEs is also of vital importance; particularly for those who borrow large amounts, and generate small amounts of income.

There is also a broader long-term point that should be considered. A recent World Economic Forum report
sponsored by Zurich showed that ‘income disparity’ will soon become a huge worldwide challenge. This
prediction is made against a ‘perfect storm’ here in the UK. Many SMEs rely heavily on the personal capital of their owners in order get the business off the ground and subsequently receive loans and financial investment.

At the same time, due to a broad variety of market pressures causing a reduction in disposable income and
a rise in living costs, the ability to build an equity and asset base for leverage is more challenging than ever,
notably among the generation under 40 where the average age of a first mortgage is now 37.

Our research has highlighted this, with 43% of small manufacturers saying that they feel exposed to risk when it comes to financing. The danger is that with high unemployment and low growth, the prospect of raising personal capital becomes narrower. This could well lead to a generational finance gap and the subsequent decline of a successful UK SME sector that is less able to connect and gain benefit from the global marketplace, ultimately having detrimental effects on British economic standing.

In light of such pressures, it is pleasing to hear that the Government supports diversifying lending risk through the promotion of other options of alternative financial assistance such as SME bond issuance, seed and crowdsourced funding and private venture capital finance routes over the long term. But most of all, what is vital to small businesses is not just access to initiatives such as the Enterprise Capital Fund, but alongside this, access to the expertise and experience that can help SMEs to grow, expand into new areas and get the most out of financial assistance; ultimately building more sustainable and robust SME sector

Only by treating both access to finance and access to business expertise and advice as two halves of the
same coin, will the British SME sector be able to truly grow and have greater resistance to future economic
shockwaves. This is vital to the long term stability and growth of the UK economy and Britain’s standing on the global economic stage. To reach this will require more than just a bank loan; it will require a mutual dialogue and understanding between financers, businesses and government.

This was posted in Bdaily's Members' News section by Richard Coleman .