Access to finance Contents

3Is there a finance information gap?

The importance of understanding there are choices

41.While the number of finance providers and the products available has increased since the financial crisis, a common theme in our evidence has been the barrier of SMEs not being aware of the finance options available or understanding which ones are most appropriate for their needs.106 Over half of SMEs do not shop around but go straight to their bank to apply for finance.107 And SMEs are, by definition, small and do not always have the time to research their options. As Mr Woolard, from the Financial Conduct Authority, said:

We need to think about the opportunity costs that small firms face. We often want them to behave in a very economically rational way and spend lots of time shopping around, getting the right deal, but that is time that will not be spent on running their own firm, which is the core of what they do.108

42.Anna Soubry MP, the then Minister for Small Businesses, said the Government wanted business people to “shop around and to look at the alternatives” but that “not enough of them understand the full range of [finance] options”.109 Surveys of SMEs show that awareness of the alternatives has grown but awareness of a specific supplier of that alternative has not grown at the same pace. Similarly, greater awareness has not led to greater use of the alternative form of finance.110

43.The British Business Bank has recognised the need to improve the dissemination of information on finance options and to build confidence among SMEs in the options available.111 The BBB used its “convening power”112 to persuade the business groups, the British Bankers’ Association, equity investors and venture capital bodies, and alternative finance providers, to collaborate on a Business Finance Guide for small business. The guide is available in hard copy, as a downloadable pdf and as an interactive online guide,113 and its usefulness was highlighted by our witnesses.114 Mr Morgan conceded the BBB could “do a better job” increasing awareness of the guide,115 and that it would survey its intended audience for feedback.116

Information is not enough

44.Alongside making information available, it is important to enable the SMEs to seek advice on the options. Business that are prepared to take advice are more likely to be successful in raising finance as it increases the chance of them being matched with the most appropriate source of funds.117 This was a recurring point in our evidence, that education on options and the process of raising finance would help businesses be prepared to secure the most appropriate form of investment. To assist this, the alternative sources of finance needed to be promoted more.118 The provision of information is not enough; as the Minister told us, “the British Business Bank can signpost you but it cannot give you advice about the best product for you”.119

45.The marketplace for finance has improved since 2009, with more finance providers and a greater choice of products available. However, many SMEs are time poor and not experts in business finance. Their capacity and appetite for extensive research on finance options is small. A recurring theme in our evidence is that access to information and advice on finance options is a more significant barrier to SMEs than the availability of funding. Furthermore, businesses that seek and receive advice greatly enhance their chance of securing finance.

46.The British Business Bank has been an important development in providing a single source of information for business finance. However, there remains a gap between demand and the availability of free business advice. Information provided by the British Business Bank, and others, must be user-friendly, consistent and accessible to non-specialists. It must be able to direct the customer onto the next step. The Government and the British Business Bank need to build on the work of the Business Finance Guide, and prioritise cooperation with business networks and business advisers, often local accountants, to encourage SMEs to seek advice at the earliest opportunity.

47.We welcome the fact that the British Business Bank has a performance indicator “to promote better information on, and understanding of, finance options”. The publication of the Business Finance Guide is a positive step, but the British Business Bank has to rely upon other organisations to deliver the information. We recommend that the British Business Bank explain to us, in the response to this Report, their strategy for promoting understanding of the Business Finance Guide, how it will identify and target hard to reach groups, how it will measure any increase in the awareness and take-up of alternative finance products, and its analysis of the feedback from SMEs on the Business Finance Guide. Furthermore, we recommend the Bank explain how they will analyse the volume of traffic to the online Business Finance Guide and how that will inform their strategy for increasing awareness of understanding finance options.

Business networks and trusted sources of advice

48.Our witnesses were clear that SMEs place a strong emphasis on taking advice from trusted sources. Andrew Sandiford, an accountant who works with businesses in the South West on England, said it was “critically” important for businesses to “seek advice and have access to the networks and knowledge” in order to be successful.120 Professional advisers, such as accountants—a point emphasised in the recent CMA Report into retail banking—and business networks, were popular.121 Business networks also provided individuals to act as mentors and coaches, experienced business people who can, formally or informally, provide ongoing guidance for less experienced business people. There were also initiatives, such as the ELITE programme operated by AIM, developed with the specific aim to nurture entrepreneurs.122 HSBC ran workshops to help start-ups understand basic strategies and established businesses understand how to get to the next level of growth.123

49.There was scepticism about advice seen as being provided by the Government, and if the Government should be giving such advice at all.124 HMRC was seen as a useful conduit to alert businesses to new developments simply because business people have to pay attention to HMRC.125 We heard mixed views on Growth Hubs: Mr Sandford, ICAEW, said that their websites could be confusing so it was not easy to find out what service they provided, and it could appear inconsistent from region to region.126 The British Business Bank was seen as addressing the needs of business and, importantly, was seen as suitably independent, a point made to us by the Minister for Small Business.127

50.Our inquiry reinforced the importance of SMEs seeking advice from trusted sources. We were also struck by the initiatives providing mentoring and coaching for new business people, from bodies such as the Start-Up Loan Company to the AIM stock exchange. The Government should add value by working with the major business groups and finance providers to make sure they have mentoring schemes or events specifically aimed at passing on the experience of successful business people on how to secure finance to grow a business.

106 Q82. ATF008

108 Q204

109 Q213, Q211

112 Q168

114 E.g. Q82

115 Q168

116 Q178

117 Qq68–69. ATF017

118 Grant Thornton ATF036, Aldermore Bank ATF044

119 Q245

120 Q68

121 Q37, Q38, Competition and Markets Authority, Making banks work harder for you, 9 Aug 2016, p.11

122 Q239

123 HSBC ATF039

124 Q38, Q242

125 Q48

126 Q54. See Department for Business, Innovation and Skills ATF054

127 Q242

28 October 2016