Merchant Money: How will the budget affect SMEs?

Following this month’s emergency Summer Budget announcement, specialist lender Merchant Money has discussed how it could affect the lending market to SMEs…

The announcement from George Osborne this month revealed numerous key changes that could affect different areas of the specialist finance market.

Jan Stefanowicz, CEO of business lender Merchant Money, has discussed how changes such as the predicted rise of interest rates and the implementation of the new National Living Wage could affect the growth of the SME sector.

“The success of our economy and the future wellbeing of the SME and micro SME sector ultimately depend on leveraging production,” commented Jan.

“As general interest rates are projected to rise into 2016, the cost of manufacture - and so goods and services - will rise, potentially affecting the SME sector growth.

“That said, the government has made a start in promoting investment options for SMEs, targeted at smaller companies and start-ups. 

Jan explained that with “tier 1” lenders also forced to have a ‘secondary online market’ to whom they must refer declines, then micro and small businesses will continue to have a strong potential to secure financing from traditional and a growing number of alternative sources.

Osborne announced in his speech that the new National Living Wage, which will start next April at the rate of £7.20, is set to reach £9 an hour by 2020 and will be compulsory for working people aged 25 and over.

Osborne stated that the new National Living Wage would have “only a ‘fractional’ effect on jobs” according to the OBR.

“They say that by 2020 there will be 60,000 fewer jobs as a result of the National Living Wage but almost 1 million more in total,” explained Osborne.

“They also estimate that the cost to business will amount to just 1% of corporate profits.

“To offset that I have cut corporation tax to 18%.

“To help small firms I will go further now and cut their national insurance contributions,” concluded Osborne.

Those earning under £11,000 will also no longer have to pay national insurance.

Jan saw this as a “good message to low paid workers, with an obvious push against the employer.”

“The simplification of the dividend taxation tax credit system, which is due to be implemented from April 2016, will impact SME owners who make an income from a salaried wage as well as drawing a dividend income.

“Shareholders of small incorporated companies often pay themselves a combination of salary and dividends and will see dividend tax credits replaced by a tax-free allowance of £5,000 of dividend income.”

Following the new referrals initiative now passing into legislation after its announcement in March, 10 major banks will be obliged to offer any business whose loan application they have rejected a referral to a choice of new online platforms.

“As patrons of the NACFB we are delighted that SMEs will have the additional route open, however our concerns remain that the banks will only refer out those applicants who have endured a long application journey and may not necessarily stimulate other SMEs to approach these alternate sources of funding,” commented Jan.

“Having said that, Merchant Money are delighted to be working with introducers, brokers and other lenders to help meet this financial need,” he concluded.