Small Business Act is ‘First Step’ for UK Firms
Measures designed to pave the way for UK small and medium enterprises (SMEs) to get improved access to finance became law this week following Royal Assent for the Small Business, Enterprise and Employment Act.
The law requires banks to pass on details of SMEs that they decline for a loan to online platforms, which can help match them with alternative finance providers – provided that this has the firm’s permission.
However, according to Sacha Bright, the founder and chief executive (CEO) of the UK’s crowdfunding aggregator, BusinessAgent, it is too early for SMEs to start celebrating.
“The managing director of the British Business Bank, Andrew Van Der Lehm, admits that there won’t be anything in place until sometime in 2016,” commented Bright. “In his own words: ‘It is better that the system is implemented well than we rush it’. While the desire for quality is fine, this demonstrates an appalling lack of urgency.
“We are in a situation where, according to government figures, first-time SME borrowers face a 50% rejection rate. Many of these businesses are high growth SMEs operating in a knowledge based economy and the traditional banks are ill-equipped to help them.
There are alternatives out there for these businesses, but despite rapid growth in the alternative finance market, there is still a significant lack of awareness. This will only be accelerated by effective signposting from the places where businesses still tend to go first – their bank.”
According to UK innovation charity Nesta, the alternative finance market provided £1.2bn to UK businesses last year. Although this represents 214% year-on-year (YoY) growth, it is still only about 2% of annual UK business lending. Bright estimates that more than 250,000 businesses could be helped when the legislation is effectively implemented.