Chuka Umunna MP & Shadow Business Secretary speaks at “Alternatives to Traditional Business Funding”
Chuka Umunna MP, Shadow Business Secretary spoke about the importance of SMEs to our economy at an event yesterday organised by MarketInvoice at Cass Business School.
Umunna said: “Politicians speaking to innovative small businesses wax lyrical about how SMEs are the lifeblood of our economy – I make absolutely no apologies for following in that vein because they are.
“Together, our four and a half million SMEs employ almost 14 million people, accounting for almost half of private sector turnover.”
In the current economic climate, many excellent and profitable small and medium sized businesses are struggling to access the working capital they need. The Bank of England’s Trends in Lending publication for last month showed the stock of lending to UK businesses overall contracting in the last three months to August. The Bank’s latest Agents’ summary for this month states that small businesses are still reporting that credit conditions remain tight, and in some cases have become tighter. This is supported by the figures released this week by the BBA showing lending by the high street banking groups to non-financial businesses contracting this month.
Umunna said: “It is encouraging that in MarketInvoice, we see the market is coming up with a solution to help small business owners deal with this growing problem.”
With SMEs finding it hard to raise money in the current economic climate and banks squeezing lending, an increasing number of businesses are opting to trade their invoices through MarketInvoice to boost their short-term working capital. Companies use this platform to obtain up to 90% of the invoice value upfront from high net worth clients and institutional investors who compete to provide companies with the lowest cost of finance. Using MarketInvoice, small companies avoid hidden costs, and onerous personal guarantees required by the bank and the low rates make them an attractive alternative for businesses struggling to acquire funding.
Umunna said: “Now, the banks say that their failure to lend to small businesses is a failure of demand, not of supply. MarketInvoice’s success suggests otherwise.
“And, acccording to the SME Finance Monitor – the most comprehensive survey of business’ on these issues – over half of SMEs applying for overdrafts this year for the first time have been refused.
“In addition, more than 400,000 SMEs who wanted to apply for an overdraft in the third quarter of this year didn’t do so – a third of them said this was because they were discouraged by their bank.
“So it is, in part, a failure of supply.”
Project Merlin figures recently showed that major banks had undershot their Q3 lending target and lent SMEs 8.3% less than the previous quarter.
Anil Stocker co-founder and Director at MarketInvoice said: “This disappointing figure underlines the now widely held consensus that relying on banks to sufficiently hit lending targets for SMEs is not working.”
Ummuna added: “Project Merlin – the agreement between the banks and the government to resolve some of these issues – was supposed to sort all this. I don’t want to dwell on it – Merlin was a PR exercise designed to get the government out of a tricky situation when the bank bonus declarations were in full flow and the numbers published under the agreement are misleading.”
Late payment of invoices accentuates this and puts a huge burden on companies looking to grow. The late payment’s culture in the UK is getting worse according to the most recent figures from BACS which revealed that half of all the UK’s small and medium sized enterprises are awaiting late payments. The survey also found that on average, each firm is owed £39,000 in late payments, with the total amount owed to SMEs having reached a staggering record figure of £33.6bn.
Anil Stocker, co-founder and Director at MarketInvoice said: “Using the MarketInvoice platform not only improves cash flow but also helps business leaders focus on growth and other key company objectives. The government must support these innovative financial platforms as in the long run they could revolutionise lending to SMEs, rather than relying on government to subsidise loans through state-controlled banks. It is hopeful that companies such as MarketInvoice could improve the credit conditions of the economy and play a vital role over the next 10 years.
Having opened our doors in February 2011, we are already helping 45 small businesses access capital having channeled over £2.6 million to these businesses since inception (with last month alone seeing over £670,000 worth of auctions). There are already 25 institutional buyers registered on our platform.
“We wait in anticipation to see what the credit easing announcement due in next week’s Autumn Statement will say.”