Small and Medium-sized Businesses: Access to Finance

Lord Stoneham of Droxford Excerpts

Thursday 30th January 2014 Lords Chamber

[Lord Stoneham of Droxford (LD)]

My Lords, in the brief time available to me, I should like to indulge the House with a parable based on a true story. When I studied the Industrial Revolution at university, I always associated a man called Henry Cort, the inventor of Cort’s puddling process in iron-making, with Abraham Darby, Ironbridge and the northern industrial areas. When I came to live near Portsmouth, I discovered that he was a supplier to the Navy, and, having patented his process, he built a new iron mill at Fontley, four miles from where I live. He needed funds for his new foundry and he borrowed £30,000—worth over £2 million now. He got the funds from Adam Jellicoe, chief clerk of the pay board of the Royal Navy, who secured the money on the patents registered by Cort.

One might wonder how the chief clerk of the pay board of the Royal Navy could afford such a vast deal. He had, of course, a ready source of funds and—you guessed it—he was the Robert Maxwell embezzler of his time. The money had come from the Navy payroll. Poor Mr Cort. The Navy took his patents, and although 8,200 puddling furnaces were built by 1820, Mr Cort saw no financial benefit from his innovation. When the Navy purchases fell back, his foundry bankrupted him. He died in dire straits and is buried in Hampstead.

The lessons of that story for small businesses are as important today as they were then. First, sources of secure funding are absolutely essential for the establishment and growth of small businesses. Secondly, just as important is the guidance of mentors and advisers to innovators if an idea is to reach its commercial potential. Thirdly, funds for SMEs have to be sourced locally by those familiar with local businesses who lend and by small businesses which do not have the time or resources to go further afield. Fourthly, the public sector has a role. The public sector rarely wins prizes for business innovation but it can be a valuable partner to small businesses. It is a purchaser of goods. It should be committed and forced to pay its bills on time but it also can provide seed-corn funding to reduce risk and leverage other sources of funds.

Sadly, our banking system has delocalised just when localism was most needed. The Government have spawned an array of new funding schemes, including the business bank and the green bank, which are all great initiatives. But where does an SME go when it needs to get help and easy access to funds?

Reverting to my local area, we must not underestimate the role of local economic partnerships in providing a hub of activity, advice and funding for SMEs. My local LEP, the Solent LEP, has brought together Portsmouth and Southampton, which is a huge achievement in itself. It is backed by local authorities, chambers of commerce, the universities and local businesses, both big and small. It is now using the regional growth funds to encourage new business development linked closely to job creation.

Bridging the Gap is one of the initiatives to help businesses get going and expand to create specific jobs. The idea came from one of our local MPs, Caroline Dinenage, and it has the support of the local newspapers, the Portsmouth News and the Southern Daily Echo in Southampton, which are keen to have good news stories. They publicise the initiative, which it is hoped will ensure that local businesses can get initial funding and then leverage that with other funding. LEPs are at an early stage but the aim should be for them to become hubs for local business development and job creation, with local authorities, universities and local businessmen driving the development of business and job growth.