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Friday, 25 November 2011

Alternatives To Traditional Business Funding

Huge thanks to MarketInvoice for the kind invitation to their event at the Cass Business School yesterday. The event really highlighted the gravity of the SME funding situation and the giant leap in understanding that is required of politicians and policy-makers in this area.

Chuka Umunna MP, Shadow Secretary for BIS, gave the keynote, and the panel included Andrew Cave, the Head of Policy at the Federation of Small Businesses, Emmanouil Schizas of ACCA Global, as well as Anil Stocker of MarketInvoice and Andy Ralph, director of a company that has raised significant amounts of invoice finance in the past quarter. 

Chuka gave some useful context:
  • All the recent banking industry figures point to a significant contraction in lending to SMEs in the past quarter. Worse, SME Finance Monitor says over half of SMEs applying for overdrafts this year for the first time have been refused, and more than 400,000 SMEs who wanted to apply for an overdraft in the third quarter  didn’t do so – a third because they were discouraged by their bank.
  • A recent BACS report also suggests that "half of all the UK’s small and medium sized enterprises are awaiting late payments. On average, each firm is owed £39,000 in late payments, with the total amount owed to SMEs having reached a staggering record figure of £33.6bn."
Less helpful, however, were Labour's proposed solutions to this mess. In summary, notwithstanding his glowing endorsement of MarketInvoice's as a useful private sector alternative to bank finance and the acknowledged need for more non-bank competition, Chuka said that Labour wants:
  • Banks to improve local relationship management;
  • The government to be more active and directly involved in improving payment and supply chain management;
  • To create a new agency along the lines of the US Small Business Administration and Small Business Investment Company programme, whereby SBICs use their own capital plus funds borrowed with an SBA guarantee to make investments in qualifying small businesses - a phenomenal soure of moral hazhard and downright fraud that's been well documented by David Einhorn in his US Senate Committee testimony and the book "Fooling Some of the People All of the Time"; and
  • To use government procurement to help SMEs (notwithstanding Labour's notorious reputation for waste in that area).

Perhaps it's beyond his shadow brief, but it was notable that Chuka made no mention of the discussion of alternative regulatory solutions here and in the US, nor the Cabinet Office focus on red tape that inhibits disruptive business models that specifically identifies alternative finance platforms. There was no reaction to the suggestion that alternative payment providers should enjoy the same tax subsidies that banks and other regulated institutions enjoy through ISA/pension allowances and individuals' ability to off-set losses against income. And no thought appeared to have been given to the idea of a clearly defined 'safe harbour' for the likes of MarketInvoice and peer-to-peer platforms from the rules on collective investment schemes and/or arranging deals in investments, to enable them to start up more confidently, quickly and efficiently.

In fact, Chuka's pitch rather underscored his party's role in helping to create our desperate need for alternatives to traditional business funding. Let's hope we see some decent ideas from the opposition in future.

In the meantime, it's down to the participants on MarketInvoice, Funding Circle and CrowdCube and the many angel networks to carry the alternative funding hopes of SMEs.