Legion Trade Finance calls for boost to alternative lending market following poll of finance professionals
Breaking the SME lending logjam should be the top priority for the next government, according to a new survey of finance professionals.
Legion Trade Finance polled commercial brokers, accountants, insolvency practitioners and corporate finance advisers around the country on a range of issues ahead of the General Election.
They identified the need to bring more alternative lenders and challenger banks into the business lending arena as being at the top of the agenda for the next administration, along with urgent action to curb the late payment problems which afflict so many SMEs.
When asked what one measure should be a priority for an incoming government after 7th May, 44 per cent identified the need to compel banks to refer SMEs which have been refused finance onto alternative lenders. A quarter of those surveyed said they would like to see the emergence of more “challenger banks”, with 19 per cent highlighting the need to simplify the tax system.
“According to recent research, most small businesses stop looking if they are turned down by the first funder to whom they apply – in most cases, their bank,” says Mike Yiannis, CEO of Legion Trade Finance.
“In addition, every year an estimated 250,000 small and medium-sized businesses who would like finance are being told that they don’t meet the banks’ criteria. Only a small percentage are then being referred on to alternative funders, and offered alternative funding or advice.
“The issue of referring SMEs on to alternative lenders was a key part of the Small Business, Enterprise and Employment Bill introduced by the Coalition Government so this is already very much on policymakers’ agenda. It has also been acknowledged for some time that the banking sector suffers from a lack of competition and likewise, that the tax system is too complex and needs to be more business-friendly.”
Meanwhile approaching two-thirds - 69 per cent – of introducers and intermediaries said that late payment had adversely affected their clients’ ability to pay customers and suppliers. And when asked whether they felt the Government had done enough to tackle the problem, the answer was equally emphatic, with fewer than a fifth of respondents believing that the current measures in place, such as the Prompt Payment Code (PPC), were sufficient to solve the problem.
When it came to other solutions, there was strong support for both fining repeat offenders under the PPC and also new legislation compelling large companies to report statistics such as the average amount of time they take to pay suppliers. Some 38 per cent of respondents backed both measures.
“Late payment probably causes more sleepless nights for business owners than anything else, so the findings of our survey were not surprising in this regard,” says Mike Yiannis.
“Recent research showed that the UK’s SMEs are facing additional costs of around £677 a month which are directly attributable to late payments. This equates to around £8.2bn a year, with 63 per cent of this cost – a staggering £5.2bn a year - associated with administration time spent chasing payment.
In addition, according to the research from Bacs, more than three-quarters of businesses are being forced to wait at least a month beyond their agreed contract terms before getting paid – hitting cash flow just as the UK economy re-emerges into full recovery.”
The Legion Trade Finance survey also asked finance professionals which “big picture” issues they felt were at the top of the agenda for business.
There was a clear winner, with improvements to the UK’s infrastructure – road, rail and air – cited by almost two-thirds of respondents. A quarter said they would most like to see a thorough review of business rates, while for 13 per cent of respondents, an “in-out” referendum on EU membership was paramount.
“Politicians of all parties have been more eager than ever to cultivate business in the election campaign,” says Mike Yiannis.
“The message from our survey of finance professionals is clear – urgent action on issues such as access to finance, late payment and infrastructure is vital if the new government is to get the relationship off to a solid start.”