What are policymakers doing to improve SME access to finance?

The funding gap has shrunk mainly via market response; bespoke new lenders are rising to the challenge alongside established lenders. But what is the government doing to help?

Under-provision of financing for UK SMEs has increasingly risen to public attention in the years following the global financial crisis of 2007, and a series of high-profile cases – such as the RBS small business GRG report – has driven the point home with policymakers.

The case led the UK Parliament’s Treasury Committee and the Business, Energy & Industrial Strategy (BEIS) Committee to jointly launch inquiries into the status of British SMEs.

Treasury Committee chair, Nicky Morgan said: “The case of GRG has undermined the trust of small firms in banks, and highlighted the imbalanced and potentially exploitative relationship between banks and SMEs. Little has changed since GRG to prevent similar mistreatment happening again.”

Aside from the GRG report, a major hit to SME confidence was the collapse of massive construction services company Carillion, which left thousands of SMEs with missing payments. The UK’s Financial Reporting Council (FRC) since launched an investigation into Carillion’s former group finance directors, Richard Adam and Zafar Khan.

The issue of SME’s precarious access to reliable finance, of course, predates and is not limited to Carillion or GRG. Mike Cherry, national chairman of the Federation of Small Businesses (FSB), said in December 2017: “The UK is gripped by a poor payments crisis. Over 30% of payments to small businesses are late and the average value of each payment is £6,142. This not only impacts on the small business and the owner; it is damaging the wider economy.”

In January, the Financial Conduct Authority (FCA) began consulting on plans to give more small businesses access to the Financial Ombudsman Service (FOS). Currently, seeking redress through the Ombudsman is a service only open to consumer and micro-business complaints.

Trade bodies also took their own initiatives. Simon Walker, the former director general of the Institute of Directors, was appointed in March as independent chair of a UK Finance review into the complaints and alternative dispute resolution (ADR) landscape for the UK’s SME market.

That same month, Andrew Griffith launched a consultation on late payments to SMEs in one of its first initiatives as Small Business Minister. Griffith said: “Not only is Carillion a challenge in dealing with the fallout of what is possibly the biggest liquidation of a government contractor we have ever seen but, I think it also provides an opportunity.

“I think it can be a catalyst for us to look at the way government operates and to develop a policy that works for the 5.7m SMEs who are up and down the country.” Last month Griffiths unveiled a £8m fund intended to boost SME growth, productivity and performance across England.

Extra-governmental bodies have also sought new ways to improve SME access to finance. In June this year, UK Finance and the Lending Standards Board (LSB) set up a working group to examine the fairness of SME lending contracts, in collaboration with the all-party parliamentary group (APPG) on fair business banking. The working group will make sure participating banks adhere to the LSB’s Standards of Lending Practice when providing finance to SMEs.

Meanwhile, the British Business Bank (BBB) has launched a website offering independent information on finance options for scale-up, high-growth and potential–high-growth businesses. Central to the site is the Finance Finder, a six-step tool that enables SMEs to explore and identify finance options.