Small and Medium-sized Businesses: Access to Finance

Lord Storey Excerpts

Thursday 30th January 2014 Lords Chamber

[Lord Storey (LD)]

My Lords, I thank the noble Lord, Lord Berkeley, for facilitating this debate. It has never been truer that, in a recovering economy, the importance of SMEs is paramount. I suppose that the direct answer to the question of what steps Her Majesty’s Government are taking to improve access to finance for SMEs is the fact that, at long last, the Government have established a business bank—a business bank that has set itself an impressive target of supporting £10 billion of new and additional lending; a business bank that will help small companies struggling to secure finance.

I was fortunate to sit on the Select Committee which looked at how SMEs could increase their exporting, and the published report, Roads to Success: SME Exports, is an important contribution to understanding the importance of SMEs to the economy and how we could have more of them exporting. We would certainly make huge economic progress.

The Select Committee looked at the barriers to exporting: why should a successful SME choose not to export? How could we encourage them to export more? As you can imagine, the reasons and solutions were complex and numerous, but one issue was paramount in their concerns: that, of course, was access to finance.

It is interesting to note that the SME Finance Monitor report by BDRC Continental showed that businesses with the confidence that they had a chance of getting finance were more likely to expand. However, there is a real deficit of confidence when it comes to SMEs looking to get finance. Only 37% of SMEs planning to apply for finance believed that their application would be successful, whereas the actual rates are a lot higher, at almost 67%. The research identified a staggering 270,000 businesses that wanted to apply for finance but never ended up doing so. The report identifies this lack of confidence in their chances of success as a key reason.

These figures show that SMEs often will not apply because they do not think that they will be successful, when actually the opposite is true. That may be why there is a feeling out there that banks are not being supportive. We need to give confidence to them to go for it. The British Bankers’ Association, with its Better Business Finance initiative, is attempting to increase this confidence by awareness-raising campaigns to change that mindset. The message is: approach lenders and you are likely to get the finance that you need to grow and, hopefully, export.

While I constantly hear that banks are doing all they can to prevent finance and lending, my observational experience is that the situation is not nearly as grim as is often painted. I recently met representatives from Santander to talk about how they are helping families in difficult times. The conversation turned to SMEs, and they told me of their ambition to be the SME bank of choice across the country, and how, in the first nine months of 2013, the bank had increased its net lending to SMEs by 11%, opened 15 new business centres, increased the number of relationship managers and established a capital growth fund of £2 million for fast-growth SMEs, which will include trade missions, mentoring and seminars.

That is just one bank, and I do not want to single it out. I know from other contacts and evidence that banks gave to the Select Committee that other banks are just as committed. Of course, we should also mention the successful Funding for Lending scheme.

I started my contribution to this debate by mentioning the importance of the British Business Bank. Since its launch, it has made an impressive start. Total lending and investment support is up by 65% for the first six months of 2013 compared to 2012; £600 million in new finance is now reaching smaller businesses; 10,000 businesses are already benefiting from its support. Access to finance is the lifeblood of SMEs, just as SMEs are the lifeblood of the UK economy.