Carillion must be a catalyst for change on the SME finance scene

Stephen Jones
It’s important to look at the broader lessons of the Carillion crisis (Source: Getty)

The recent committee hearings on Carillion’s collapse have highlighted once again how crucial access to finance is for small businesses.

Thousands of small firms owed money by Carillion have been confronted with temporary cashflow issues and loss of business, putting jobs and livelihoods across the country at risk. This has required a rapid and coordinated response from the financial sector, working closely with the government to help the small businesses affected.

Over £200m of funding was immediately set aside by banks to support the firms affected in the wake of Carillion’s liquidation. Small business customers facing short-term problems have been encouraged to contact their bank and discuss their needs. Emergency measures, such as overdraft extensions, payment holidays and fee waivers, have been offered to help them stay on track.

Read more: MPs are getting forensic with Carillion bosses after contradictions

At the start of February, the British Business Bank announced that it is supporting up to an additional £100m of lending to affected small businesses, including those that don’t have enough assets to support their borrowing. These measures are aimed at providing the short-term support many SMEs need to help them through this challenging period.

But it’s also important to look at the broader lessons of the crisis. We need to take steps to ensure that all small businesses are treated fairly and can get the support they need financially.

The five million businesses across the country are central to our future economic success. That is why I welcome the launch of a new inquiry by the Treasury Select Committee into the issue of SME finance, and the Business Committee’s inquiry into the relationship between large and small firms.

The banking industry has undertaken a series of initiatives in recent years to improve access to finance for SMEs. Small firms whose borrowing applications are rejected can now turn to an independently-monitored appeals process and are offered the chance to be matched up with alternative finance providers through government-designated online platforms.

In July last year, 20 banks signed up to new standards of lending practice that give strong protections for small businesses, including when they face financial difficulty. And the Business Growth Fund, funded by major banks in 2011 to provide equity for SMEs, has so far delivered £1.4bn of investment and is currently backing 200 companies across the country.

The evidence is clear that these measures are moving things in the right direction.

Figures from the authoritative SME Finance Monitor show a significant improvement in access to finance for small businesses in recent years. Eight out of 10 applications for bank finance made by smaller firms were approved in 2017, up from 68 per cent five years ago. And the number of SMEs which see access to external finance as a major obstacle has fallen from over one in 10 in 2012, to fewer than one in 25 last year.

But the banking industry has more work to do to build trust and confidence. Clearly, steps are needed to improve transparency and strengthen the dialogue between banks and small businesses.

In particular, more could be done to ensure that firms understand the terms of their lending agreements when they first borrow, and that complaints are handled as well as they can be.

Last summer, a group of senior figures from across business, government and civil society came together and made a series of recommendations to build a more inclusive banking sector. These include ensuring banks offer personal feedback and advice to SMEs when loans are rejected and provide clear and easily accessible information on how credit decisions are made.

The industry is also working closely with MPs and business groups to support an independently chaired review, looking at how to improve the way disputes between banks and SMEs are resolved when the courts are not the most appropriate route.

And on the major challenge of late payments, exposed by Carillion’s collapse, the finance industry will look at what it can do to help encourage an environment in which smaller firms are paid promptly and will work with the small business commissioner to help improve this issue.

With the uncertainty posed by Brexit, it is doubly important that we ensure this vital engine of growth is firing on all cylinders.

The financial sector is committed to playing its part with all key stakeholders to ensure smaller firms are given every opportunity to grow and expand. UK Finance is determined to play a leading role in coordinating action on this issue, working closely with ministers, parliament and business groups to ensure SMEs get the best possible support.

After all, it’s in the mutual interest of banks and other SME funders that their clients prosper.

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