Around 2009 Britain’s banks lent £80 billion to SMEs across the UK. All the peer-to-peer platforms combined currently provide between £1 billion and £2 billion, depending on which source you consult. So as alternative funders argue over whether the term "alternative" is fair and helpful any more, one part of the definition of the term is still tied up in scale. It seems obvious to point that out, except when you hear people talking about how alternative funders are here to fill the funding gap.
Of course we still have the high street banks to fill the gaps – the Association has always worked with traditional funders alongside the alternative lenders. But it’s a reminder that most small businesses finance themselves out of their profits and never borrow from anyone. This might be because indebtedness has a bad press and starts looking like an extra cost, but it’s also because if a business is growing organically, out of its own profits, that in itself is a reward and a symbol of success to the business owner; why would he or she suppose that they are growing too slowly? It’s a lot simpler to revise your expectations to match reality, than to take out a loan simply to inflate reality in order to beat predictions.
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The NACFB has for a long time been approaching this problem from the position that says borrowing to grow faster is the smart thing to do. But our office’s contact with SMEs is something of a one-way street. We know what they need, because they tell us, and then it’s over to our brokers to make the relevant contact. That’s why we’re reliant on our relationships with trade bodies such as the FSB, to spread the "funding is out there" message.
Small business owners who wake up to find they are being charged less tax will reinvest in themselves and to a smaller extent spend additionally among the businesses around them that they rely on. The net result is as if they have successfully applied for a loan, and it’s a result that didn’t involve a heap of extra paperwork. It’s a result that could be imposed on them, by tax law changes, rather than incentivised as we are aiming to do with a message from our local friendly broker.
Of course, such a move would be completely out of line with HMRC’s take on VAT, for instance. But a tax law change would be a very welcome component of the right answer. In theory at least, such a move would alienate no one. Big businesses are unlikely to see smaller ones as current or short-term rivals, entrepreneurs would shake their MPs’ hand off, and the theory runs that in the medium term, a business that’s paying a lower rate of tax, but has increased its turnover, will pass on the same amount to HMRC.
In the meantime, we are sending in the educators to help SMEs grow without any tax regime changes. Our brokers will soon be learning about the minimum standards agreed on by our patrons. They’re likely to look a lot like the FCA’s guidance, just a bit more hands-on. The FCA has been saying for a while that you must do x and you must do y, and that they
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