ALTERNATIVE FINANCE MANIFESTO

Transcription

1 ALTERNATIVE FINANCE MANIFESTO PRIORITIES FOR THE NEXT UK GOVERNMENT Contact: Louise Beaumont Head of Public Affairs & Marketing GLI Finance Limited

2 INTRODUCTION We believe the focus of the next Parliament should be to support the small businesses which are the engine of our economy. We aim to support the business people running the 5 million small and medium sized enterprises (SMEs), lauded by politicians as the bedrock of Britain s economic growth. A large proportion of SMEs rely on external finance in some form. The SME Finance Monitor, an industry led survey of SME lending, found in Q that approximately 40 per cent of SMEs used external finance, with 30 per cent of SMEs using core products loans, overdrafts and/or credit cards. Large companies, generally speaking, have access to alternatives to bank lending, e.g. bond markets. Of course SMEs rely on, or have in the past relied on, the traditional banking sector. The truth is that Lloyds, RBS, HSBC and Barclays, still provide more than 85 per cent of the loans to SMEs in Britain 1. WHO ARE WE? GLI Finance Ltd (GLI) is the leading investor in the global alternative finance sector offering a spectrum of financial solutions to SMEs via its portfolio of investee platforms. We invest in alternative finance providers, offering SMEs a wide range of finance solutions (such as supply chain finance, trade finance, loans, bonds, financial matchmaking, rewards, donations, and invoice finance) across 18 platforms and 3 continents (North America, Europe and Africa). For this reason, our priorites cover alternative finance and our family of investees as a whole. GLI is highly supportive of the efforts to open up the market place for funding and to improve access to alternative finance for SMEs, and bigger businesses alike. 1 FT March,

3 5 Million SMEs The engine of the UK economy. Current Situation 2015 Among those seeking finance, there is a widespread perception that high-street banks are the only source of funding for SMEs. With the right levers Full and undiluted implementation of access to finance regulations by HM Treasury + British Business Bank (BBB) Marketing campaign to support SME uptake of alternate finance Increased bank competition Facilitation of growth of non-bank sector 5 Million SMEs The engine of the UK economy. Future Situation 2016 Those seeking finance can choose bank or non bank finance. 10 x designated banks >85%* of SME finance is provided through 4 banking groups Non-bank finance regulated have cash to lend many options Over 62%** of finance applications are unsuccessful.? Are successful applicants receiving the best available deals? Refused finance automatically referred to designated platforms * FT March, ** In the 18 months to Q2 2014, 62% first time loan applicants were unsuccessful in securing a facility: BDRC 3

4 THE SUCCESS OF THE ALTERNATIVE FINANCE MARKET IS VITAL FOR THE SUCCESS OF SMES THE ENGINE OF OUR ECONOMY PRIORITIES: 1 An empowered and well-funded British Business Bank The BBB has been successful in its crucial role of opening up the market for nonbank SME finance - a model which other jurisdictions are now looking to emulate. It is instrumental in delivering the last government s plans for supporting SMEs. The BBB will be taking forward the implementation of the mandatory referral scheme whereby designated high street banks will be mandated to refer SMEs that have been refused finance, to a referral scheme run by one or more neutral platforms. Action: we call on the next Government to ensure the BBB has sufficient firepower to deliver the scheme as it was intended, to offer a real choice to those SMEs seeking funding. We hope that the BBB will continue in its current form so that progress to date is not jeopardised. It must understand the pace of the market and the particular needs of SMEs and the different funding options available to them. Action: the Government must ensure the full and speedy implementation of access to finance (designation) arrangements as set out in the Small Business Enterprise and Employment Act, and that there is no dilution of the regulations. Side-deals between banks and funding platforms should not deter SMEs from the use of designated platforms in favour of a bank s named platform, which would affect the neutrality of the referral process. Action: similarly, the Government should, via a neutral arrangement, monitor and publish referral data regularly to track progress and ensure the regulations are working effectively. 4

5 2 Marketing to raise awareness options. The reality is that banks are set up of alternative finance to lend to companies with tangible assets 4 to secure loans against, whereas millions of companies are now fundamentally knowledge economy businesses, with IP assets, meaning banks are often ill-suited to best serve such businesses. Action: The Department for Business, Innovation and Skills, with the British Business Bank, should run educational and promotional campaigns to ensure SMEs are made aware of the range of different forms of alternative finance, from bonds to donations, to equity and invoice finance, and where to go to find out more. Increasing awareness of the alternative finance options available for SMEs doesn t just need to be targeted at business owners themselves. SMEs are likely to approach banks first, followed by an accountant or professional adviser to discuss raising finance figures show: Only 27% of SMEs (excluding the permanent non-borrowers) in 2014 were aware of crowdfunding 2. Surveying their members in March 2015, the British Chamber of Commerce said: there remains little understanding of alternative finance options 3 Out of habit and a lack of wider awareness, many SMEs will approach their bank as the first port of call in order to discuss finance Failure to address issues of awareness and understanding means the alternative finance industry would fail to continue growing as it has, and the UK s SMEs will not be able to access the finance they need, when they need it. Louise Beaumont, GLI Finance 3 Support for the running of an education programme Likewise, to ensure effective implementation of the designation regulations, bank relationship managers, and their counterparts in accountancy firms, will need detailed knowledge of the industry, the forms of alternative finance available, and those which might be suitable for their clients. Action: it is important that bank relationship managers, and professional financial advisers, can access neutral guidance about the alternative finance market upon which to base their own advice to SMEs. This will ensure that those SMEs seeking finance are presented with a broad and appropriate range of options. The expedited introduction of the Peer-to-Peer ISA Action: we call for the expedited introduction of the Peer-to-Peer ISA which is to undergo additional consultation by HM Treasury. It is important that the new ISA is created as a third, separate class of ISA. This is a more appropriate vehicle for delivering the Government and FCA s objectives of protecting investors particularly since P2P loan investments are intended to fall outside of the Financial Services Compensation Scheme (FSCS). Similarly, we call for the inclusion of non-uk platforms within the European Economic Area (EEA) which abide by equivalent regulatory standards. The ability of the UK to remain as the global leader in the alternative finance industry is surely dependent upon its ability to compete internationally. However, it will be important for the FCA and HMRC to clarify the equivalent regulatory standards so that UK and non-uk EEA platforms can compete on a like-for-like basis. 2 (BDRC: SME Finance Monitor, 2014: 3 (BCC, in evidence to the Treasury Select Committee, published 13th March: 5

6 Tax reliefs and arrangements 5 REGULATIONS INCURRING FinTech is a knowledge intensive industry. Action: we call for the next Government to maintain the generosity of the Seed Enterprise Investment Scheme (SEIS), and Enterprise Investment Scheme (EIS). These schemes, along with recent amendments to withholding tax provisions, should be monitored as standard to encourage responsible lending. Action: we seek the ability to create corporate structures which would allow tax efficient investment into SME loans through a corporate vehicle (similar to Business Development Companies in the US). Analogous with Real Estate Investment Trusts (REITs) in the Real Estate sector, these structures would bring more flexibility for lending to SMEs in the UK than existing UK investment trusts. The success of Business Development Companies in the US suggests that a new structure could provide a significant amount of SME lending capacity. NO OR LOW PUBLIC COST There are actions the Government and regulators are working on. These must be implemented properly with clear accountable oversight. Action: we seek regulation of alternative finance providers to bring them under a common regulatory environment, including conduct of business obligations, as other areas of financial services are. This will allow the regulator to have recourse to the finance platforms and their Directors if their business processes are found wanting. Appropriate regulation of crowdfunding, peer-to-peer lending, and other forms of alternative finance, such as invoice finance and commercial finance broking, is required to enable the protection of SMEs, investors, and the growth of the market. Action: any new regulations must be fully implemented with clear and accountable oversight. Some regulations will be from the Financial Conduct Authority (FCA), others from HM Treasury, however proper consultation with industry and effective communication between regulatory bodies is vital. Action: full consideration of the outcomes of the Competition and Markets Authority review of retail banking. Action: expansion of Project Innovate at the FCA to encourage innovation in financial services and to ensure that regulations keep pace with emerging trends. 6