In the UK, similar to other parts of the world, SMEs are the engine of economic growth and associated job and wealth creation. According to the Federation of Self-Employed and Small Businesses (FSB);
- Small businesses account for 99.3% of all private sector businesses at the start of 2015 and 99.9% were small or medium-sized (SMEs).
- Total employment in SMEs was 15.6 million or 60% of all private sector employment in the UK.
- The combined annual revenue of SMEs was £1.8 trillion or 47% of all private sector turnover in the UK.
These are important numbers to understand. If you do not have an environment that fosters innovative young firms, and entrepreneurs, you risk killing the entire economy. While it may be a slow, lingering demise, the outcome is inevitably not a positive one. Limiting red-tape (regulation), incentivizing investment in smaller firms (think EIS and SEIS) are all policy initiatives that serve the greater good. Politicians, and other opinion makers, that ignore these truisms are myopic at best or simply suffer from cerebral folly.
The UK GDP rose by 0.5% in Q4 of 2015. The annual rate of growth for the year tallied 2.2%. While not spectacular, when contrasting the UK economy with other developed nations, this number does not look too bad. Predictions are for this rate of growth to hold steady in 2016.
The British Business Bank, a hybrid private-public partnership, has a “clear mission” to improve access to capital for SMEs. The agency presently works with over 80 finance partners, including many peer to peer lenders, to provide a streamlined process for access to capital. The BBB, having recently published it’s 2nd annual report entitled Small Business Finance Markets, states that;
“successfully increasing the number of firms that scale-up would substantially impact job creation, productivity and growth. Therefore, it is a priority to understand what is needed for a more supportive and cohesive ecosystem that enhances the capability and ambition to grow amongst high potential smaller businesses in the UK.”
The BBB admits it must do more and management will strive to empower a growing number of financing solutions for SMEs to help them scale and grow. Alternative finance remains just 3% of gross lending but this sector grew by a reported 75% in 2015. Of the approximately £2.8 billion from online platforms, P2P lenders provided the bulk of this amount at £1.3 billion. The BBB notes that;
“The UK has by far the largest online marketplace for funding, when compared with other European countries. However, this channel of funding is relatively young, particularly in mainland Europe, with the potential for continued high growth across Europe.”
The BBB states that for some smaller firms that are looking to scale rapidly raising equity is a more appropriate approach. Seed stage funding, aided by equity crowdfunding platforms, is growing by 48% per year since 2012. In 2014, £2.2 billion went to early stage companies – something the BBB calls “healthy” while recognizing this is just a fraction of what occurs in the US today – which is 7X larger as a percentage of GDP.
In the end, policy decisions must not be measured in a day, or a month, or a year for that matter. This is a long term game – more marathon than sprint. Consistent pro-business policies that dodge the “unintended consequences of regulation” and dampen entrepreneurial vigor must be combined with appropriate societal encouragement. The recent boom in Fintech in the UK has been championed loudly and not just by the creative participants, but by government leaders. While there remains much work to be accomplished the healthy, evolving internet finance ecosystem is a bright light in the UK’s economic horizon.
The BBB report is embedded below and is a must read document.
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