Government Assistance to Industry - Business, Innovation and Skills Committee Contents


Written evidence from the Institute of Directors

  1.1 Thank you for giving the Institute of Directors (IoD) the opportunity to respond to the new inquiry on Government Assistance to Industry, which was announced on 21 July 2010. This paper presents our response to your call for evidence. Issues surrounding business support and access to finance are of considerable interest to the business community in general and to the IoD in particular. We are therefore pleased to participate in the consultation and present our response for your consideration.

ABOUT THE IOD

  1.2 Founded by Royal Charter in 1903, the IoD is an independent, non-party political organisation of 40,000 individual members. Its aim is to serve, support, represent and set standards for directors to enable them to fulfil their leadership responsibilities in creating wealth for the benefit of business and society as a whole. The membership is drawn from right across the business spectrum. 84% of FTSE 100 companies have IoD members on their boards, but the majority of members, some 70%, comprise directors of small and medium-sized enterprises, ranging from long-established businesses to start-up companies.

GENERAL COMMENTS

  1.3 The IoD has responded to this inquiry primarily with member data collected on the state of small business finance in the UK and our view on potential reforms to the provision of broad-based business support. While we have been unable to share similar data on the challenges and activities around export support, if invited to give oral evidence to the BIS Select Committee we remain hopeful we may be in a position to share member research due to be commissioned within the next few weeks.

STATE OF BANK LENDING (2009)

  1.4 IoD research (approximately 1,000 respondents) conducted in November/December 2009 found that a quarter of directors said that they had tried to access finance from the institutions that they banked with in 2009/10. Of this quarter, 57% of directors said that their application for finance had been rejected by their bank.

  1.5 In February 2010, when these results were publicised the IoD became aware that (in state supported banks) the stock of loans to businesses (year-on-year) had fallen by some 8.1%.

  1.6 The same IoD data also found that 1 in 5 businesses that wanted additional capital in 2009-10, didn't investigate bank loans or overdrafts because they believed they would be declined, saddled with disproportionately high costs or required to comply with requests for additional security.

  1.7 Further data showed that the type of finance being accessed by businesses had also changed over the past few years. IoD data from 2001 showed that 45% of IoD members were financing their businesses through bank loans and 40% through overdrafts. Today, only 28% are doing so via bank loans, 36% through overdrafts with a further 20% financing their business to some degree through credit cards.

  1.8 During the same period (09/10) the IoD noted some significant issues with access, publicity and availability of the Enterprise Finance Guarantee. In fact, we noted that "Government support in the form of the Enterprise Finance Guarantee is not getting through. Despite Government assurances that businesses found to be ineligible for commercial credit would be offered access to the taxpayer-backed fund, 83% of those declined bank finance were not even offered information on the Government's Enterprise Finance Guarantee."

  1.9 While in many cases the Enterprise Finance Guarantee would have proven to be appropriate for the business concerned, the fact that 83% of our members were not knowingly evaluated against its applicability to their situation following a decline was concerning.

STATE OF BANK LENDING (JANUARY—JUNE 2010)

  2.1 IoD research (approximately 900 respondents) conducted in June 2010 found that 39% of IoD members' firms applied for finance with a bank (applications include requests for renewals/extensions/new requests for overdrafts and loans) in the time period 1 January 2010—June 2010.

  2.2 This compared with an application rate of 25% in the previous survey (see above), which covered the longer time period, 1 January 2009 to December 2009.

  2.3 Of the 39% of IoD members' firms which applied for finance in the time period 1 January 2010—June 2010, 33% had an application for finance declined by a bank

  2.4 This compares with a decline rate of 57% in the previous survey which covered the longer time period, 1 January 2009 to December 2009.

  2.5 37% of IoD members stated that in the period 1 January 2010—June 2010 they had noticed an increase in the amount of security being requested against any lending that their organisation sought.

  2.6 This follows 29% of IoD members in our previous survey having noticed an increase in the period 1 January 2009 to December 2009. No respondents in the latest survey noticed a decrease in the amount of security being requested.

BUSINESS SUPPORT

  2.7 The IoD believes that the Government should look to remove the current cohort of paid Business Link advisers and replace them with a larger network of accredited director/volunteers, who are willing to assist individuals in the creation, growth and realisation of their business aspirations.

  2.8 The model is innovative, but not untried. It should deliver greater numbers of advisers (than the present 1,500), higher intensity of advice and eventually a more respected brand amongst business owners. The proposal that the IoD is suggesting sees the removal of paid employees and their replacement with willing volunteers. It replaces national government interventions with government and business partnerships. It replaces bureaucracy with citizen activism and does so at lower cost.

  2.9 The Institute of Directors have been out to visit the Business Support offerings available in the Regions and were struck by the straightforward nature of requests and questions that were coming into the call centres. On the basis of what we saw, there was a clear and evident case for cost savings and efficiencies that could be delivered by rolling together the regional back-office resources and delivering a national phone and web-based service.

  2.10 However, the necessary corollary of this change is that the face-to-face element of Business Link advice would have to be looked at. The IoD's impression of the advice offered was that it was of mixed quality, but that where delivered well it was received positively. The most significant drawback to the benefit of face-to-face advice was its scarcity. Business Link Advisers often visited the same businesses only once or twice a year, meaning that often the input was so light touch as to be unproductive.

  2.11 In an environment where cost constraint will reduce the resource allocated to a face-to-face business support programme that is already lacking in intensity it becomes essential to not only tweak the framework, but to fundamentally review it.

  2.12 One example of a framework for business mentoring (as proposed) would be that the largest business representative organisations in the UK came together and shared their membership details with a single secretariat that agreed to contact individuals about their interest in advising business. Having drawn together the list of willing advisers, the organisations could then accredit the standards of advice (paid for by government funding) and ensure relevant waivers are signed that ensure the advisers do not cross-sell etc. Such a secretariat would be able to administer requests, link up individuals with advisers etc and deliver the service.

  2.13 It is the IoD's view that if such a model were delivered; the Government would need to fund this national mentoring service (Volunteer Director Network). The service could be administered by a single external contractor as a national contract, but in order to fund it partially through ERDF funding, the role could be administered regionally.

  2.14 The service would need government finance in order to begin immediately and to have full national coverage: The scheme will be considerably less costly than the Business Link service, but the IoD believes that such a proposition would only require an annual outlay of £1-2 Million.

  2.15 The required finance would fund:

    — Advertising of the availability of the service to potential mentees

    — Strategic recruitment of potential mentors

    — Funding for the brokering/matchmaking service between mentees and mentors

    — Underpinning costs for indemnity insurance, frameworks for required mentor/mentee behaviour to avoid conflicts of interest and cross-selling etc

  2.16 Such a service could be set up with or without accredited training for mentors, but the costs outlined above are based upon such a training programme being in existence.

  2.17 The interest amongst the business community is certainly there. In a survey of IoD members conducted in August 2010, over 40% of directors who responded said they would be interested in becoming a mentor.

  2.16 The above outline is not the only way the service could be delivered, but the model share some broad characteristics with the SCORE (http://www.score.org/index.html) programme in the United States of America (see below).

    SCORE is the Service Corps of Retired Executives

    The Service Corps of Retired Executives (SCORE) is a national non-profit organization that counsels business owners and aspiring entrepreneurs. There are 389 SCORE chapters throughout the United States offering counselling services to small businesses in all areas at no charge to the client. There is no membership requirement to receive SCORE counselling—a phone call to make an appointment with a local SCORE chapter is sufficient to put the small business owner in touch with this valuable organization.

    History

    SCORE was founded in 1964 specifically to provide business counselling to entrepreneurs. A national non-profit organization, SCORE is funded primarily by the U.S. Small Business Administration (founded in 1953). The group is made up of more than 10,000 active and retired business executives familiar with all areas of business management. This group donates its services, conducting one-to-one counselling as well as team counselling and training sessions. SCORE provides assistance to an estimated 300,000 plus would-be entrepreneurs and business owners annually. According to the SCORE Web site, the organization has helped 7.2 million small businesses since its founding.

    Mission and Programs

    According to SCORE, volunteers "serve as `Counsellors to America's Small Business.'" The volunteer members of the organization are "dedicated to entrepreneur education and the formation, growth and success of small business nationwide."

    SCORE counsellors provide general business advice on all aspects of business formation and management. This service is provided free of charge and in confidential fashion. Counsellors may assist in anything from investigating market potential for a product or service to providing guidance on cash flow management. They may provide insight into how to start or operate a business, how to buy a business or franchise, or how to sell a business. Volunteers also review business plans, often offering suggestions before the plans are submitted to a bank for financing consideration (in one survey of SCORE offices in 14 states, 27 percent of respondents indicated they delayed or cancelled plans to start their own business after talking with a SCORE counsellor, usually because the meetings illuminated shortcomings in training or strategy). Finally, individual SCORE offices offer free and confidential counselling and business advice via electronic mail on the Internet. According to the organization, these e-mail counselling sessions are its fastest growing service (SCORE offices conducted 75,000 such sessions in 2000).

    SCORE also holds workshops throughout the country. Workshops and seminars on specialized areas of business training such as writing business plans, inventory control, advertising, financing and international trade are available at reduced cost (usually a nominal fee of $100 or so, to cover cost of facilities and materials). For more information on this and other SCORE services, the organization maintains a Web site (www.score.org) detailing its offerings.

    SCORE Volunteers

    SCORE volunteers are usually between the ages of 60 and 70, but there is no age limit for a volunteer. Retired executives interested in joining SCORE fill out a formal application and usually supply a resume for consideration by their local chapter. There is a 90 day probation period during which performance is monitored. To insure quality, SCORE counsellors are matched to cases according to the type of business or client seeking advice and the counsellor's area of specialty. SCORE is not an employment service, however. Members may give advice, but may not accept positions with client companies, nor may they direct a business owner to individuals or firms which may provide employees. SCORE's main function is to provide free advice to small businesses.

24 September 2010






 
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