There is a lot of focus at present on the UK economy and, in particular, how businesses are going to respond to the next stage of the post-COVID environment that will see a large amount of the government support ‘taps’ being turned off.
It has been a very difficult last 18 months for many businesses – especially in sectors such as retail and hospitality – who have effectively had their working worlds turned upside down and have been reliant on the much-needed measures that government put in place.
One of the major issues for businesses of all kinds is ongoing funding, especially if they have relied on government intervention such as furlough, CBILS or VAT deferral schemes, or the money made available via the banks such as the Bounce Back Loan Scheme. These types of measures have been instrumental in keeping some firms going through this period.
Much has been talked about the potential for some firms, particularly SMEs, to struggle in this new environment. From our perspective we believe that many, many businesses have everything in place to make a success of their futures, but in order to do so they are going to need further business support, both from a monetary point of view and also in terms of the direction they need to take their firms in order to remain successful.
Access to finance is clearly our domain as a bank that lends to SMEs, and one of the main reasons we were created was to help close the ‘funding gap’ that we continue to see in the marketplace as firms struggle to secure business finance.
If we were in any doubt about the size of the problem, and why Recognise Bank is undoubtedly needed more than ever, it came with the recent report from the All-Party Parliamentary Group (APPG) on Fair Business Banking. The report by leading MPs detailed profound problems for UK SMEs in accessing finance, and suggested there is a £22bn funding gap.
These problems were even more pressing for certain types of businesses, namely very small or very new firms, those run by black or minority ethnic individuals, firms in certain sectors such as building and hospitality, and businesses based outside of London and the South East.
The APPG report said problems are endemic in a system dominated by ‘four larger shareholder-driven banks’, which it says is not fit for purpose ‘to address growing inequalities.’ The MPs have called on the government to ‘turbocharge the challenger bank and non-bank lending sector’ to compete with these institutions.
As someone who has worked within the sector for over 20 years in two of the big four banks, I don’t find this surprising. Disappointing? Yes, but not surprising, because I’m acutely aware of how reliant firms have been on the ‘Big 4’ and how difficult it can be to secure finance with institutions that have huge legacy challenges,
such as aging technology and back books of debt. They have also cut back on their BDMs, have become more risk-averse and are often no longer willing to put resource into relationship-building with those businesses that need it most.
We wholeheartedly agree with the APPG’s findings and its proposal to reform SME finance. For me, though, it’s more than just filling that funding gap.
It’s about helping businesses who are overlooked by the major banks, or who do not have their cases looked at closely enough. It’s also about those companies that are perceived to be a bigger risk because the sector they are active in isn’t well understood by the lender, or because they don’t have on the ground experience of the part of the country where the SME is based.
That is simply not fair, but in a system which has been traditionally dominated by a few big lenders, there has been little alternative for those who can’t access funding through these channels.
The good news is that this is already changing, and clearly reports such as this and further pressure being brought to bear on the government – especially given its focus on a levelling up agenda – can only help in ensuring that more business customers get access to the funding they need, and that customers and their advisers continue to recognise the alternative routes to funding that are out there.
Micro businesses are the next SMEs; SMEs are the next major national operators; and they are the next global businesses. We have to ensure we can provide the necessary financial and business support for all, but especially those firms that are starting on their journey or those that need money to make it to the next level.
This is where we come in as a SME-focused Bank and it’s where we can make a significant difference. Increased government backing for the alternative lending sector will enable banks like Recognise to increase the support available to SMEs and ensure that every business that requires funding has access to it, and is not reliant on a handful of banks that are not willing to lend.
