THE BLOG

The Funding of Micro-Businesses: Cinderella Can Go to the Ball

30/04/2014 16:50 BST | Updated 30/06/2014 10:59 BST

As the senior partner of a top 20 accountancy firm (Kingston Smith), I have spent over 35 years advising London-based SMEs on the best ways to access finance. We are all aware of the difficulties small businesses face in accessing bank finance, as well as the array of government schemes intended to redress the balance, including Growth Accelerators and the British Business Bank. It is even more of a challenge for micro-businesses to find and obtain affordable loans, particularly as processes are often both lengthy and complicated.

It is worth noting that only a quarter of SMEs seek finance within any one year, and 75 per cent of applicants receive the funds they ask for. This still leaves a significant number of viable and potentially highly successful small businesses unable to access the finance they need. The conventional wisdom is that the major banks are not interested in lending to SMEs. One of the main factors cited is that banks find it difficult to gauge whether SMEs have the capacity or willingness to repay their loans. From an SME's perspective, not only do banks fail to provide the funding required but they also seem to know very little about what businesses require, and are therefore unable to offer constructive advice.

A further difficulty is the opacity of banks' lending criteria - when applications are turned down feedback is frequently inadequate and unhelpful to the applicants. More transparent processes from the banks would be a major improvement. However, this would still require SMEs to prepare well researched and viable business plans in order to obtain finance. Furthermore, it would be desirable for everyone to acknowledge that banks need to make money specifically by lending to SMEs (compared with trading in markets) and thus margins have to be sufficient. I have always seen that SMEs want continuity of funding much more than a very low rate.

Getting the funding of micro and small businesses right is not only important for those directly involved, but for the UK economy as a whole. In 2012, 4.8 million SMEs employed 14.1 million people and had an estimated combined turnover of £1,500 billion, representing over 48 per cent of the UK private sector. It is essential that SMEs are provided with more opportunities to access finance, in order for both their enterprises and the economy to prosper.

I'm therefore particularly delighted to be chairing today's launch of the London Loan Fund, which is provided by Lloyds bank with support from the European Investment Fund (EIF), with loans being made GLE oneLondon. This is particularly so as I chaired a previous fund run by GLE with support from Kingston Smith that successfully lent money to SMEs in London and saw the benefit to the SMEs it supported.

The new £5 million Fund will provide loans to over 270 enterprises in London. The aim is to provide micro-finance to disadvantaged groups in London's deprived areas, helping small-scale entrepreneurs to get their projects off the ground. Those who benefit from the Fund may have had past difficulties in raising finance from any source; they may have had no financial track record, a poor credit history or no security. The Fund will not only contribute to economic growth, but will also increase prosperity and thus help improve social inclusion across some of the most difficult London neighbourhoods.

The Fund uses a unique blend of UK tax incentives and EU-backed guarantees to make the costly process of a detailed appraisal of what is known as the 'person and their proposition' commercially viable for smaller value and unsecured, small business lending.

At a time when the banks are determined to regain public confidence, it is encouraging to see Lloyds at the forefront of such an enterprising proposition which will provide a helping hand to small businesses struggling to find a footing on the ladder to success.