The UK's five million small businesses are vital to the economy. They provide 60% of jobs and half of GDP. But most companies fail to achieve real growth: only 20% expand their workforce each year. By improving access to finance, making it easier to do business with the public sector and supporting entrepreneurship across all walks of life, the Government hopes to see significant improvement in growth rates across UK plc.
Minister for Business and Enterprise Mark Prisk says: "As a former small business owner I know how important our SMEs are to the growth of this country. I entered government with the goal of making this the most entrepreneurial decade in our history and I'm confident today's announcements will make that a reality."
Vince Cable announced the following policies at today's Summit*:
Improving access to finance
Helping SMEs to do business with Government
Social tenants to be allowed to start businesses from home
Stephen Archer, co-founder of leadership and communications firm Spring Partnerships welcomes today's announcements but worries that it's too much about aspirations and not enough on specifics.
"Take the Business Finance Taskforce," he says. "The banks will only pay lip service to this initiative unless there are tangible incentives. The banks should be offered corporation tax breaks based on the level of SME lending and their risk portfolio with SMEs. Banks, despite their apparent recklessness over the past decade are culturally very risk averse."
The Government has talked up the new £1.5bn Business Growth Fund, mentoring schemes and a new lending code, but hasn't presented an actual strategy for fulfilling the agreement. "This is a Len Goodman 6/10," says Archer. "Plenty of dazzle but no substance or application to detail."
Frank Cochran, MD of FSC Investment Services, agrees: "It's all too easy to try and get the banks lending SMEs more money, but the problem is what they're charging for the privilege," he says. "Banks will simply not lend against a business plan alone - they want personal guarantees and the business owner to have a property which has sufficient equity to enable them to have loan-to-value, allowing them to take a charge of the property and protect their position.
"Undoubtedly, this is something which has got noticeably worse due to the recession and the demise of the banks cash flow due to the credit crunch, but they are still charging extortionate rates of interest on loans, which is not proportionate to the amount of risk that they are really taking."
Ian Sharland, director of baby development firm Baby Sensory, sees another fly in the ointment. He worries that the Government's pledge to help small businesses tender for government contracts is just not viable while it is still investing in its own versions of existing services. "To create more private sector jobs and secure overseas orders, government should stop the practice of investing in the design of new ideas and concepts where a viable private sector option exists," he says. "This would cut public sector expenditure and create more private sector jobs. We should create an environment where government becomes the first prospective client considered by new start-ups and not the last. The Government teams should be proud to be supporting innovative British companies."
Overall, small business owners have welcomed today's announcements. They simply demand more clarity. Andy Pearce, CEO of conference calling business Powwownow, says: "I applaud the government's announcement this morning that it is to award 25% of government contracts to British SMEs, but I would like them to define what government is? Is that the whole of the public sector or is it just Central Government? If it is the entire the public sector then this is huge, a massive step in helping SMEs grow and develop.
But Pearce has a caveat for SMEs looking to sell into the public sector: "We have several contracts with the NHS and also local government. Our sales and customer service team work very hard getting them up and running. It is admin heavy and time consuming. I would like to understand how the government is going to support small businesses fulfil these contracts?"
Angela Maxwell, MD of Acuwomen, is worried that the Enterprise Finance Guarantee Scheme, labelled 'very successful' by Government, is failing to help the majority of businesses: "On the surface the Enterprise Finance Guarantee Scheme looks like an excellent initiative," she says. "But I know from supporting SMEs in the West Midlands that this didn't automatically lead to additional lending with many banks still reluctant to lend."
Vince Cable has focussed heavily on supporting start-ups. But what of existing businesses? What of the firms that are already contributing to our economy?
Peter Ewen, managing director at invoice and asset based lender Venture Finance, says: "The consultation is guilty of focusing too heavily on start-ups and entrepreneurialism. This is an important long-term strategy, but it doesn't fully address the real 'engine of recovery' that ministers so frequently refer to. Start-ups launched now are vital but will take some time to make an impact. The economic revival needs to start today.
"Established SMEs currently seeking support for growth are the businesses that have the capacity to drive recovery now. Many small and medium-sized firms that retrenched during the recession are now having trouble accessing the working capital required to seize opportunities presented by new economic growth."
FSC Investment Services' Cochran concludes: "Every avenue needs to be examined to encourage the SME owner to make the best of their skills and resources. Business owners also need to have cheap access to these business mentors or business angels, the life of an SME owner can be quite lonely, who do they turn to, to get the right sort of advice they might need to help deliver the business support and development skills needed. I would love to see this happen sooner rather than later, for everyone's sake."
*It is important to note that some of these measures will apply to England only.