This is the fourth 'Enabler of Enterprise' identified in the UK government report on enterprise - and I think they've got this section bang on the mark. Here are the key points with my views:

  • The main problem with access to finance is not any kind of lack of available finance - its a lack of 'investment readiness' in companies seeking funding.
  • There is however an equity gap for those seeking funding amounts between £250k and £2m - it is a little more difficult to obtain funding in this bracket even if you are investment ready because its a bit out of the reach of Angels, but below the radar of VCs.
  • The Small Firms Loan Guarantee Scheme helps many firms raise debt finance when they don't have suitable security. This is particularly important to modern creative industries. I think these scheme is excellent - however the banks could implement it better.
  • The Enterprise Investment Scheme and Venture Capital Trusts encourage investment in small firms. Again I think these schemes are absolutely excellent, but could do with being better known and understood.
  • A range of government equity funds have been established, such as the regional venture capital funds, and are beginning to make a difference to companies that would previously have been caught in the equity gap.

Here is the key phrase:

The Government believes a market failure exists in the provision of finance and investment readiness support, particularly for early stage, potentially high growth, often high risk businesses. This is because the cost of such support, often needed on a one-to-one basis, is high but is usually only recouped much later, from future fees and earnings, if the
business is successful. Many private sector support providers are unable or unwilling to take the risk of substantial losses if the venture does not succeed. Growing businesses can also be constrained by a lack of senior managerial expertise. It is demand side weaknesses, rather than financial barriers, that are likely to constrain growing businesses who experience a knowledge/skills gap.

Access to Finance: Key new policy proposals

The white paper proposes the following new policy initiatives to improve access to finance:

  • 20 per cent uplift in new SFLG tender allocations for one year.
  • Extend the eligibility of SFLG to businesses with growth ambitions that are more than five years old, including but not limited to those who have changed ownership.
  • An additional £30m capital commitment to stimulate the delivery of mezzanine finance through Enterprise Capital Funds commitment to stimulate delivery through SFLG.
  • Commitment of £12.5m for capital fund focused primarily on investing in women led businesses.
  • Launch of a third round of Enterprise Capital Funds, with around £50m available to invest. Further £100m available to commit in two subsequent rounds.
  • Commitment that businesses that use invoice/debt factoring are eligible to compete for public sector contracts.
  • Expansion of the Money Advice Trust’s Business Debtline service.
  • Support and work with British Business Angel Association to develop and build capacity in UK’s Business Angel sector.
  • Development of a national framework for the delivery of investment readiness support, including targeted support for under-represented groups such as women.
  • Commitment to explore further non-legislative approaches to tackling late payment.

In short I think many of these initiatives are excellent. The UK is one of the best places in the world to get fair funding for your business, and these will only improve on that situation. The focus on helping companies get 'investment ready' is key, expanding the SFLGS is very welcome. More could be done on late payment issues however. I'm not sure how much 'non-legislative; approaches will work when they haven't worked so far. Prompt payment by corporate (and public sector!) clients would solve a lot of small firms' financial problems straight away.