Sadly, the simple fact is that banks are not lending as much to small businesses as they used to. I don’t want to be seen as ‘bank bashing’; banks find themselves in a Catch 22 situation at the moment. Government says they must lend but European regulation insists they maintain plump balance sheets, and this ties the bank’s hands.
The SME community’s almost exclusive reliance on bank loans as funding did make it vulnerable; and these vulnerabilities were well and truly exposed when banks were forced to rein in their lending. But with a lack of alternative funding sources currently available, if you are an SME, you don’t have much option but to keep all your funding eggs in one basket.
So where can the broker find their alternative sources of finance for their SME clients? Many brokers will know that there have always been sources of funding from individuals or syndicates (often called ‘business angel capital’) and from companies specifically set up to invest in companies (called ‘venture capital’).
The idea of private investors stepping into the breach and making up at least some of the shortfall left by the main lenders is proving appealing and many of our members are working exclusively in that area.
There is still much more work to do, however. The SME market represents a risky sector for angels or venture capitalists, so one idea is that tax incentives could be offered to make this kind of investment more attractive to investors.
But unfortunately, even with sweeteners, there is a very real possibility that once the banks return to strength, the SME market will revert to being just as reliant on them as they always have been, and potentially just as vulnerable.
So investigating alternative now won’t just help with the present, but could also help prevent the same problems happening again in the future.
