Small and Medium-sized Businesses: Access to Finance

Lord Leigh of Hurley Excerpts

Thursday 30th January 2014 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I thank the noble Lord, Lord Berkeley, for introducing this important debate. I speak as someone who has spent the past 30 years advising SMEs on corporate finance matters and I draw noble Lords’ attention to my entry in the register of interests which discloses that I am the senior partner of Cavendish Corporate Finance. My focus has been on advising SMEs on their exit strategies, but that has included helping them to raise finance.

In my opinion, this country has a superb track record of encouraging entrepreneurs to start businesses and grow them, and I was personally encouraged by the pro-business environment of the late 1980s under the previous Conservative Government to start my own business. My partner and I each invested £10,000 with a commitment to each other not to draw a salary for a year because we knew that no bank would back us. Accordingly, I have always believed that it is not governments who create jobs but businesses like mine.

Life has moved on since those days and there is increasing recognition that help and assistance has to be given to SMEs, which are the backbone of the British economy, as the noble Lord, Lord Sheikh, said, and more importantly will be the engine of growth. It is clear that the Government are doing an excellent job in facilitating the proliferation and growth of SMEs, unlike the traditional banks, as the noble Lord, Lord Bilimoria, said, whose central control of decision-making, depriving local managers of important decisions, and in some instances disgraceful behaviour, should be investigated by the Minister.

Under the coalition agreement, however, the start-up loans scheme has been a tremendous success with a staggering 10,000 start-up loans being celebrated late last year, as noted in this House. Encouragingly, the number of private sector businesses in the UK has increased to 4.8 million at the start of 2012, which is a record. The Government have encouraged SME entrepreneurs in a variety of ways. More than 3,000 regulations, including those relating to employment, health and safety and the environment, have been identified for scrapping or improvement through the red tape initiative and businesses are now allowed much more flexibility when downsizing.

The one area that does need attention is financing. I remember as a university economics student in the 1970s studying the equity gap, which some may remember was defined in the Wilson report. At that time, a huge problem was financing equity investment into SMEs. I was particularly pleased to see the EIS and SEIS schemes, which have enabled entrepreneurs to raise seed capital from friends and family, helping them to make the big decision to start up.

I warmly welcome the success of the business growth fund, which I see being extremely active in the marketplace carrying out equity investments in businesses. I am keen to see the implementation of the business bank, which should have some £4 billion and will match Germany’s KfW, which has done so much to help the German Mittelstand with much greater numbers. I note the concern of the House of Commons Public Accounts Committee that the main challenge is not new initiatives but, as the noble Lord, Lord Bilimoria, indicated, making sure that SMEs are aware of the plethora of financial help and assistance now available to them. This is the right direction of travel. There is currently a huge range of financial assistance being offered by this Government to SMEs—the problem is communicating that to entrepreneurs.

Finally, I wish to raise a point of concern about peer-to-peer lending—this is not meant to refer to debts between Members of the House of Lords but to crowd funding. Although hailed as the new disruptive technology to challenge the banking industry, and thus welcome, I have some concerns about it and am pleased to note that from April 2014 the industry will be regulated by the FCA. It is still currently a tiny industry, but I wish to express concern at its huge rate of growth. There needs to be much more examination of how the money is lent and the experience of management in making loans and spreading risks for lenders. Peer-to-peer lending should provide a further excellent opportunity for access to finance for SMEs. However, we need to be prepared for failures ahead, as history shows that the current tremendous economic growth, created by coalition policies, will lead to businesses overtrading and could lead to defaults on such borrowing.