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1 FEEDBACK TO THE BRITISH CHAMBERS OF COMMERCE ON FUNDING AND FINANCE SCHEMES PROVIDED BY THE GOVERNMENT IN AID OF SMEs 10 FEBRUARY 2012 Hampshire Chamber of Commerce is the Independent Voice of Local Business across the county and is one of the largest business representational groups in the UK. It brings together the combined influence, strength and expertise of the county s three former major Chambers of Commerce. This substantial business network engages businesses of all sizes and in all sectors whether throughout Hampshire, or in more focused local groupings, as and when required for the Solent LEP, Enterprise M3 LEP, South Hampshire, the New Forest, North or East Hampshire; main towns of Aldershot, Andover, Basingstoke, Eastleigh, Fareham, Farnborough, Fleet, Gosport, Havant, Romsey, Waterlooville; and the city regions of Portsmouth, Southampton and Winchester. I refer to the request from the British Chambers of Commerce for feedback on current funding and finance schemes provided by the Government in aid of SMEs. Hampshire Chamber of Commerce is pleased to provide the following views which have been collated from responses received from our members, that include observations on the value of each scheme and any concerns expressed: 1. THE FUNDING AND FINANCE SCHEMES: Regional Growth Fund Funding has successfully been achieved via Local Enterprise Partnerships. Members have expressed concerns as to the effectiveness and speed of allocation of these funds to initiatives and projects to assist business in the short term. Enterprise Capital Funds Members have agreed that this fund is an excellent way of boosting SMEs but time in accessing the funds has to be speeded up. Enterprise Finance Guarantee Few banks have marketed this funding strongly. Excellent source of funding for R&D projects Pitched at the right level for SMEs in terms of amounts available Green investment bank Members are concerned that this bank will financially damage UK businesses by UK businesses having to comply with expensive European regulation. 1

2 Business Growth Fund No views expressed. Export EFG Restrictions are set too high making thresholds for borrowing prohibited The EFG was designed to support up to 1.9bn of new lending to economically viable small businesses. In Q4 (2010) only 99m was lent and whilst the scheme has since been expanded to include a larger number of banks who will be able to receive the guarantee, Members report that the intrinsic issue remains with the banks deciding which businesses qualify. Despite the Government s guarantee to the bank for 75% of the loan, Members are of the opinion that the criteria applied by the banks is precisely the same as if the guarantee was not in place. The Chancellor announced in the 2011 Budget that the scheme would be extended until with the hope that it can provide up to 2bn over the next 4 years. Members believe the chancellor s forecast is looking optimistic and may need reassessment. ECGD Bond support scheme Threshold set at 1m which is too high (for a contract awarded at 10m, business would need a 10% bond). Combined contracts not eligible according to banks must be one contract only. Banks appear not to be knowledgeable on full range of this scheme and the benefits. ECGD Export insurance policy No views expressed ECGD Export Working Capital Scheme Only available in conjunction with a bond scheme. Helpful but only in cases of a large value contract to finance. Members are concerned that banks may not be supportive of this scheme as it will leave a lot of small loans generating small amounts of interest and therefore high administration costs. 2

3 2 BUSINESS CONCERNS EXPRESSED 2a Overviews: SMEs in the UK, along with small and large companies, are currently experiencing difficulty in accessing credit. Whilst Central Government understands the importance of financial investment in the SME sector, there is a number of challenges businesses face not least understanding the plethora of schemes available but also policies of banks as lenders. Members expressed that business confidence would be higher if a more flexible approach was taken by banks. A sharper, commercially based, more local point of delivery for financial lending and support would help SMEs in particular. Streamlining of finance schemes and a review of success of funding schemes over the last 3 4 years, would be useful in understanding the take up and effectiveness of the schemes. Processes involved can onerous on small businesses. Significant Q&A burden and requests for information that the Government can already review about a Company from its various returns, means that businesses view very little value in pressing ahead without the need to employ the expertise of a highly skilled financial consultant to deal with an application, which in itself could bring about financial pressure. Value of the schemes is difficult to track and appear to be inconsistent. There is an excellent financial mechanism available to SMEs already in existence in Hampshire region called FSE previously known as Finance South East. With seemingly easier and more desirable features, it has produced some positive commercial lending decisions, managed risk well and led to some good results. Regarding FSE, the Government could see a return - it just needs to be seeded, promoted and taken up. The Finance South East model exists and Members believe would be easy to implement. This scheme also avoids the inertia and bureaucracy of the clearing banks. In theory, the lowest cost method of business financial support is through tax incentives. It is also the most targeted towards businesses that stand the best chance of succeeding, at least financially anyway. Double tax relief for training would be an incentive. Also, relief on Capital Expenditure is being wound back which is considered restrictive and short sighted this needs to be reviewed with the Government considering some useful remedies/measures. Members are of the opinion that tax, over-regulation and bureaucracy red tape makes some businesses relocate and look elsewhere i.e. overseas as they may not be regulated as much, pay less tax and the workforce may be cheaper. If the Government can work with businesses, perhaps allowing them to use their income to develop their businesses in other areas with a view to re-using old premises, office spaces, creating jobs etc. this will help local communities with employment, crime and business and overall will be good for the economy. Most of the funding schemes currently are of no real use to SMEs as qualification is restrictive and processes are slow to make any impact. SMEs would benefit more from incentives through 3

4 business rates, empty rates, and reduction in small company tax whilst increasing the small company tax threshold. Members advise that if the Government wish to achieve increased levels of employment and GDP growth, they should target SME s with a track record of growth and well managed margins. Despite many different funding and finance schemes that the Government has introduced to assist SME's, some SME's find that they do not qualify for funding or assistance in one scheme and this dissuades them to look at other schemes in relation to their type of business or sector. There are too many finance schemes in operation and there is an underlying assumption or a perception by the Government, that such schemes will solve the problems of recession. Overall, there seems to be little or no assistance for family run businesses and small businesses that employ very few people and offering a service to the local community. Banks are converting overdrafts to loans which do not readily assist cashflow. Ultimately, these conversion loans will cost businesses more in the long run through re-negotiated deals involving higher interest rates. Members are requesting the Government to insist that banks be more flexible, bring about a cultural change that lends support from initial beginnings of a business or business idea, helping with simplified business plans and tailoring finance; and develops longer lasting business relationships. Members have expressed a wish for the Government to consider taking away the decision to lend (or not) under the EFG scheme away from banks. It is the view that banks have an obsessive predilection with Capital Adequacy Ratios; whilst understood, this is restricting investment in the UK economy and overrides any commitment to invest however plausible the business proposition. Businesses need straight forward guidance that helps them to access funds promptly and with the minimum of fuss. The Government should never tire of informing on the subject of access to credit. It s not the lack of finance available in the economy that s causing the problem - it s the access to it and the speed at which it is generated and circulates. 2b Credit Easing With regard to credit easing Members agree this has to be the way forward. At present it is very difficult for businesses and people to borrow money to progress and get to the next stage in their business and personal life i.e. obtain business premises, expand and move their business to the next level or purchase their first home. This then has a knock-on affect on the property market, solicitors conveyance market, estate agents, surveyors, builders, etc - the list goes on. If credit was more readily available and offered in a structured way that would herald a more sensible use of credit, and Members agreeing that this would increase confidence in the market place resulting in more business transactions. These factors would be key drivers in ensuring the 4

5 economy gets back too its normal position much quicker than if credit was not available or was much harder to obtain. In a deep recession, growth and demand needs stimulating. Emphasis on new markets, environment friendly schemes (the Green agenda), infrastructure projects, and better promotion of apprenticeships are areas business believe need focus in terms of support funding.. In the matter of apprenticeships, this requires a greater promotion from national level (National Apprenticeship Week 2012, has gone almost unnoticed by the UK media). 2c: VAT Members have said that business would welcome a cut in VAT that should bring new confidence to most business sectors and international trading. 2d Media Members believe that the media needs to talk up business more and help promote business by using case studies for editorials. A good example of how media can help is by recognising the British Chambers of Commerce s new campaign, Business is good for Britain, which is supported by Chambers of Commerce throughout the UK including Hampshire. SUMMARY These are the consolidated views of Hampshire Chamber of Commerce Members. To recap on the key points: 1. More clarity in funding available 2. A concerted effort to reduce red tape 3. Revise thresholds to allow for more SMEs to qualify for funding 4. Consideration for tax incentives (including business rates incentives) and a cut in VAT 5. Speed up the release of funding 6. More flexible, working relationships adopted by banks 7. More support from media Jimmy Chestnutt Chief Executive Hampshire Chamber of Commerce 5