One announcement that thrilled us here at MarketInvoice is that the Government has committed to allocating £100million to invest through non-traditional channels and platforms (p.44, section 1.233). The fact that alternative financing options were even mentioned in the Budget is really encouraging and shows that a significant proportion of British businesses want to grow and create jobs, but are not being satisfied by the current range of traditional banking products. The biggest barrier for small business owners embracing alternatives is simply awareness, so while this investment is fantastic, the industry receiving a shout-out from the Government will pay huge dividends for business in the long run.
The Chancellor also used the Budget to launch the National Loan Guarantee Scheme. The NLGS will guarantee £20bn through bank loans to small and medium businesses. The scheme will help businesses access cheaper finance, by reducing the cost of borrowing under the scheme by 1 percentage point. Four major banks, Barclays, HSBC, Santander and Aldermore, have embraced this credit-easing scheme. This is a step in the right direction for small businesses as it looks like the Government are trying to get banks to start lending to more SMEs, however this is not much help if the majority of small businesses can’t get the bank loan approved. The minimum loan value is £25,000, a figure that has alienated many small and medium sized enterprises.
The Enterprise Finance Guarantee (EFG) is a loan guarantee scheme intended to facilitate additional bank lending to viable SMEs lacking adequate security for a normal commercial loans. The reforms to the EFG announced by the Chancellor will make it easier for SMEs to access guarantees. The reform sees the Government acting as guarantor for bank lending and thus giving credibility to small business loan applications, the Government will underwrite 75% of the loan, which in theory means SMEs have a chance at debt finance even if they don’t have the collateral to back it up. The EFG is designed to help lend to viable businesses with an annual turnover of up to £41m and seeking loans of between £1,000 and £1million.
As has been established before there is no silver bullet to solve the SME liquidity problem. What was announced in the Budget is encouraging, and it shows the Government are helping to educate business owners that there are now emerging alternatives right across the financing spectrum, from P2P lending, to debt-for-equity and, of course, [[Invoice Marketplace|invoice finance]].