In its latest Small Business Finance Report, covering 2017 and 2018, the British Business Bank welcomes the fact that the flow of capital to SMEs has been enhanced by a growth in non-traditional funding sources. To be more precise, lending and crowdfunding platforms are continuing to provide small businesses with finance that simply was not available at the beginning of the decade.
From the British Business Bank’s perspective, this is very good news. Set up by Government, the organisation’s objectives are to increase the diversity of supply in the SME finance market and to encourage innovation on the part of providers.
However, the report does point to a regional divide in terms of how businesses access the funding they require. Put simply, businesses operating in London and the South East are more likely to be either considering or accessing non traditional sources of finance than their counterparts elsewhere in the country.
This is part of a bigger picture. The ability or willingness of SMEs to secure traditional debt funding to some extent correlates with their location. As the report points out, “the diverse regional spread of bank lending does not mean that debt finance products are utilised to a similar level across the whole of the UK.”
And nor is access to equity funding evenly distributed across the UK regions. According to the British Business Bank, equity investment tends to be concentrated in London, which accounts for 52% of total deals. The regional divide is also a matter of concern for the UK Business Angels Association, which has been campaigning hard to encourage more investment (at angel level) in those parts of Britain that are underserved by equity finance providers.
Fast Growth or Steady State
You could, of course, argue that, in the case of fast-growth businesses, the fact that most deals happen in London simply reflects the reality that the capital is a hotbed of entrepreneurial activity, particularly around the tech sector. But the truth is, there are fast-growth businesses (or High Growth Firms as the British Business Bank likes to call them) everywhere in Britain. Witness a recent report from Tech Nation – the body charged with encouraging tech entrepreneurs to network and grow. Delivered to Parliament in late October, the report notes that the UK has produced 60 unicorn ($1bn) businesses since the 1990s and while a high proportion are in London, they have also been created as as far afield as Edinburgh, Manchester, Leeds, Oxford and Cambridge.
In other words, the regions can’t be ignored. That’s true if you are looking at steady-state SMEs that might not be growing much but are nonetheless thriving and employing a lot of people. It is also true of fast-growth companies that need access to both equity and debt capital.
The Role Of Platforms
This is where debt and equity platforms should be playing an important role. Platform finance providers are accessible from every part of the UK. There are no restrictions saying that a business in Northern Ireland, Scotland or the far-flung corners of Wales or West Country can’t apply for a loan or pitch for equity investment. In that respect platform finance providers provide one answer to the regional divide.
We’re not quite there yet. The Bank report notes alternative finance is used disproportionately in London and the South East, while being available across the UK.
Part of the reason may be, simply, that the alternative finance marketplace is still young. Yes, over the last eight years or so, increasing numbers of businesses have taken advantage of opportunities to crowdfund their businesses or to borrow from P2P or Private Debt Platforms – and those businesses have come from just about every sector.
But as the industry grows, it is important for those working within the sector – not only the providers themselves, but also the introducers and financial advisers – to continue to publicise the types of finance available from alternative sources and also to educate business owners. The industry should be making an effort to spread that educational effort far beyond the capital to the regions.
A Deep Dive
That education probably has to go beyond simple explanations along the lines of ‘this is P2P lending and this is how it works’ or ‘ here are the principles of crowdfunding’. The Alternative Finance market is now so diverse that a deeper dive into the products available is required.
For instance, not all lending platforms are the same. They have different lending criteria and different charging structures. It’s important to choose a platform that suits the requirements of the borrower – wherever that borrower happens to be located.
For instance, The Route – Finance focuses on lending to companies that while having viable and well-conceived business plans, might, nonetheless, fall outside the lending criteria of traditional banks. Crucially, The Route has provided finance for businesses across the
Despite economic uncertainty, small and medium sized businesses have continued to thrive. It is vital that wherever they are, they are made aware of all the funding sources.
To find out more about The Route – Finance call: 020 3141 9040