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Business Finance Council flags business funding woes

Author: ICAEW Insights

Published: 03 Mar 2022

The financial knock-on effect of war in Ukraine propels SME access to finance up the government agenda in a discussion on the barriers faced by businesses.

A meeting of the government’s Business Finance Council (BFC) – dubbed the COBRA of business finance – whose members include ICAEW, has further thrashed out details of its forthcoming access to finance charter as the situation in Ukraine prompts concerns about likely financial impact on UK businesses. 

Rt Hon Kwasi Kwarteng, Secretary of State for Business, who co-chaired the BFC meeting with Exchequer Secretary to the Treasury Helen Whately, warned that despite overwhelming support for sanctions against Russia, the UK government is mindful of the knock-on effect for business. Concerns are rife that the action against Russia may have financial ramifications for many UK businesses, as they are hit by increased energy costs and shortages of raw materials.

A report published this week by the British Business Bank shows that business lending is now running at normal levels with equity investment in smaller businesses surging 130% to £14bn in the first three quarters of 2021 relative to the same period in 2020 (£6.1bn). 

Small Business Minister Paul Scully led a discussion in the meeting on access to finance, and the importance of ensuring a pipeline of funds to cash-strapped businesses in the UK. A revised SME Finance Charter is due imminently from the Council with a focus on helping society recover from the pandemic and cope with the new geopolitical situation.

The charter highlights the ICAEW Business Finance Guide, an independent guide that draws on the expertise of partners from across the finance industry and business community to provide entrepreneurs, SMEs and growing businesses with information on the finance options that are available to them throughout their business finance journey. 

Meanwhile, Exchequer Secretary to the Treasury Helen Whately led a discussion on levelling up, and the need to ensure that finance markets are working for smaller businesses across the whole of the UK. Both demand and supply-side factors are contributing to geographic imbalances in finance flows, according to British Business Bank data.

David Petrie, ICAEW’s Head of Corporate Finance, who has represented ICAEW on the BFC since it was established some four years ago, said the disproportionate concentration of higher risk businesses in sectors such as fintech across the South East and London goes a long way to explaining regional disparities in equity funding.

In last year’s Spending Review, the government announced a £1.6bn commitment to a next generation of regional funds, in addition to the British Business Bank’s existing three regional funds and a Regional Angels Programme, designed to help reduce regional imbalances in access to early-stage equity finance for smaller businesses across the UK.

Meeting participants heard that access to finance by both women and those from ethnic minorities is an ongoing cause for concern. Access to finance was the number one disparity between female and male entrepreneurs identified in the 2019 Rose Review and the pandemic compounded the difficulties and expanded the obstacles faced by many women in starting, continuing and scaling their business, according to a progress review published last year. Banks are being encouraged to sign up to the Investing in Women Code (IiWC), which now has nearly 80 signatories, including most major UK banks and investment firms. 

At the same time, new British Business Bank data suggests that access to finance remains a major barrier for Black and Asian and other ethnic minority entrepreneurs, and the reason why 39% and 49% respectively stop working on their business idea.

Petrie said: “It was encouraging to hear that the ministers do appreciate that the imposition of sanctions will have an impact for UK businesses including potentially an increase in costs of energy and certain raw materials. It was also encouraging that government is listening to expert advice on the way in which access to finance can be improved for businesses established by people from ethnic minorities and women.” 

Petrie said that chartered accountants had an important role to play in assisting businesses founded by those from underrepresented groups. ICAEW is the only professional body among the Council’s membership, which also includes heads of commercial banking from all the UK’s leading business banks and business organisations, including the CBI, FSB and the British Chambers of Commerce.