Finance · 31 October 2016

Parliamentary report demands government action into access to finance

access to finance
The report identified a “clear market failure” in providing sufficient access to finance for firms outside London

A Department for Business, Energy and Industrial Strategy (BEIS) committee has published a new report into the health of finance opportunities for UK enterprise, outlining a series of recommendations to ensure access to finance and investment does not restrain the potential growth of small businesses in Britain.

The committee labelled its recommendations in the “Access to finance” report as “a major test of the government’s industrial strategy”, identifying two key barriers to finance for British enterprise: the geographical position of a company and its stage of growth.

The report concluded that targeting the regional imbalance in economic growth was a crucial task for the prime minister, and identified a “clear market failure” in providing sufficient access to finance to firms outside London and the South East of England.

The report recognised government’s responsibility in “encouraging and incentivising” lending and investment for small companies in the UK, through sources such as challenger banks, venture capital bodies and “cash rich corporations”.

Alternative finance

Alternative forms of finance were marked in the report as an increasingly important function in delivering investment to small companies.

The committee praised the role of challenger banks in providing access to finance for small companies and entrepreneurs, acknowledging the benefits of a competitive market, and advised the government to outline its strategy for supporting such banks and increasing competition.

The report pointed to the “regulatory regime” that may hinder new challenger banks. It suggested potential reforms to the requirements of capital reserves held by banks in order to create a “level playing field” in the alternative finance sector.

Awareness and understanding among small firms remained the key barrier to the growth of the alternative finance market, according to the report. “The barrier of access to information and advice, rather than access to finance, appears to be magnified with alternative finance,” its authors concluded.

Start-Up Loans Company

The success of the Start-Up Loans Company was acknowledged by the committee, fulfilling its function as a “good and effective way to support entrepreneurs who want to create their own business”.

The Start-Up Loans Company provides new micro businesses with fixed rate loans of £25,000, reaching a £250m milestone in lending in August this year.

The report advised that the level of government funding set aside for the initiative must be maintained, and questioned the possibility for the scheme to be extended in its size and reach.

Brexit

Recommendations were made by the committee for the government to identify the current size of contributions from the European Investment Bank to the UK economy. The report called for ministers to confirm that the value of this funding is not reduced following Britain’s exit from the European Union (EU).

British Business Bank (BBB)

The report also advised that the government-owned BBB should be further scrutinised to assess its effectiveness in “incentivising lending and investment activity in all parts of the UK.”

The committee highlighted the importance of small businesses becoming “investment ready”, and called for a coalition of the BBB, business groups and industry networks to support companies with a high potential for growth and ensure that advice is made available to help secure appropriate funding.

Commenting on the findings of the report, chair of the committee Iain Wright MP warned that despite the positive reception by UK businesses of government initiatives such as the Enterprise Investment Scheme and the BBB in creating greater access to finance, “serious problems” remained for the government.

In a statement, Wright added that access to finance must not be restricted to entrepreneurs, but also for “established high growth small businesses with the potential to scale-up”.

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ABOUT THE EXPERT

Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.

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