Last week, the Institute of Chartered Accountants in England and Wales (ICAEW) Head of Corporate Finance, David Petrie, passed comment on the Treasury Select Committee probe into finance for SMEs. He stated that it is “the right advice, not more cash…” that businesses quite often need. This is one of a number of similar pronouncements in recent months against a backdrop of a perceived “wall of money out there for good businesses.”
The Treasury Select Committee launched their enquiry into lessons to be learned from RBS’ Global Restructuring Group (GRG), and more broadly at the state of the market for SME finance in February 2018. The Treasury Committee’s enquiry will look at “the state of SME finance, and whether capital markets are functioning effectively to provide entrepreneurs and small businesses with the finance they need to grow and thrive”.
But David Petrie argues that, “The select committee appears to be fighting the last war. Access to finance is not the problem it once was in the aftermath of the financial crisis, some 10 years ago. Relative economic stability, low interest rates and an increasingly competitive banking market means that many cash-generative businesses are spoilt for choice when it comes to securing high quality general banking and term debt facilities.”
- “Nonetheless, there are still many businesses which believe they should be advanced additional funding, but their bank takes a different view, often with good reason. Competitive pressure, instant access to online providers of debt and invoice finance and the government’s compulsory referral scheme are all serving to improve the position.”
- “Where the more serious problems in raising funding still and perhaps will always exist, is for enterprises lacking sufficient security, or where the technology and/or the market is not yet proven. According to Petrie, these companies require equity finance and a combination of relatively benign market conditions. This and previous governments have intervened to correct market deficiencies, and recent announcements have included even more generous allowances for so-called ‘knowledge intensive’ businesses and a significant boost to dedicated long term equity funds, or ‘patient capital’.”
- “While there will always be companies who believe they deserve additional funding, often what’s required is the right advice, not more cash. Some of these calls for more investment and intervention are now rather overdone.”
We believe that it is essential for businesses to not only be aware of the range of funding options that are available, but their requirements are also matched to the funder and the right option has been selected.