Only 23% of firms are aware of Funding for Lending

Business funding was thoroughly examined in the Johnnie Walker Room at The Caledonian Club as speakers from across the commercial sector considered the problem of lending to SMEs.

As the news filtered through the room from the ONS that the UK’s GDP had shown signs of a 0.3 per cent growth, avoiding a triple-dip recession, the day began with a positive air.

Tony Perkins MP, current Shadow Minister for Small Business, opened proceedings by reflecting on the current state of SME funding, and tentatively floated the idea of a supportive, local banking scheme similar to that which has seen success in Germany.

Shiona Davies then took to the stand in order to dispel many of myths surrounding SMEs. In her role as Director of BDRC Continental, Shiona oversees the annual formation of the SME Finance Monitor, which accurately profiles and explores the demand for and availability of small business funding.

Most interesting among her observations was the fact 37 per cent of the 5,000 or so businesses surveyed met the firm’s definition of a “permanent non-borrower”: in other words, they had gone five years without any external finance, had not applied for any future finance and had no further plans to. This figure, Shiona went on to say, had increased significantly over the past year.

More surprising was the revelation that 54 per cent of the SMEs questioned claimed that they had a personal element to their businesses finance, whether it was an injection of personal cash or through securing a personal loan.

Ultimately it became apparent that for many it was an issue of awareness and, in particular, of recognising the importance of schemes that would help SMEs get the funding they needed and deserved. Though only 23 per cent of firms were aware of FLS itself, awareness of the Government-backed scheme was far higher among SMEs than any other similar finance scheme.

In light of the highlighted disparities between the need and the want for funding, delegates then heard from the Bank of England’s Rohan Churm, Senior Manager of the Monetary Transmission Mechanism, and Spencer Dale, Executive Director and Chief Economist, who outlined the current success and their expectations for FLS.

Describing the three factors that affected lending levels as being the availability of funding, the availability of capital and the perceived market risk of lending, Rohan concluded that any improvement in credit availability should prompt growth. Though capital requirements still hamper funding providers – overall net lending post-FLS has fluctuated wildly, said Rohan, but remains close to zero on average- any increase in its availability would, conversely, give the best returns.

Many of the alternative lending industry’s leading figures were in attendance in Belgravia, including Ian Thomas, Director at Montello Bridging Finance.

Speaking about the BoE’s findings, he said: “It was generally accepted that the funding for lending scheme has not been delivering funding to the SME sector as was envisaged but has been mainly used to reduce the cost of borrowing on low LTV residential mortgages.

“Recent changes to the scheme should ensure that banks are more focused on SME lending as this can unlock greater volumes of low cost funding than residential mortgages.”

A small break proceeded Andrew van Der Lem’s presentation regarding the development of alternative methods for lending. As Deputy Director of the Department for Business, Innovation and Skill, he had discovered that firms typically only planned their finance options two days before they needed it.

The key to boosting SME lending, he concluded, was to discover why such decisions were made so quickly, and encourage a deep appreciation for and understanding of alternative forms of finance among firms.

Ian added: “Interest in non-bank lending seemed to be strong, with a general consensus that specific services currently provided by banks were likely to be eroded by new entrants who might offer superior services and cheap delivery through technology via online platforms.”

A final forum between Richard Hopkin, Mark Hutchinson, Clive Lewis, Simon Freethy and Funding Circle’s David de Koning sought to unpick the challenges facing non-bank lending and alternative finance.

They identified that it is the route to market for many funders that proves an issue; walls created by traditional banking structures might be circumvented, they concluded, through changing institutions behaviour or avoiding them altogether, through direct Government input or disruptive new businesses.

David de Koning, Head of Communications at the peer-to-peer lender, said of the event: “The main message that we wanted to bring across is that there are alternatives to banks for businesses which are looking for finance. A lot of businesses assume that without a bank they can’t get funding, and we wanted to challenge that assumption.

 “It was a very good event, and provided a uniquely interesting opportunity to hear from Shiona Davies at BDRC and get an impression of what SMEs expect from funders and the level of their awareness of what’s available to them. Representatives from the Government’s Business Bank scheme reiterated many of the difficulties that face smaller business, and highlighted the fact that many will only ever go to one provider to fund them.”