GUEST BLOG: Darren Westlake says the Breedon report doesn't go far enough

Commissioned by business secretary Vince Cable and chaired by Tim Breedon, the CEO of Legal & General, the taskforce examined a range of alternative and sustainable finance sources, particularly for small and medium-sized enterprises.

The report, focused on non-bank debt finance, offered encouragement for Britain's finance-starved growing businesses, but it completely ignored start-up entrepreneurs. I was particularly encouraged to see positive recommendation for peer-to-peer loans and invoice auctioning, which have emerged in recent years as genuine alternatives to bank lending for established businesses.

Not far enough

However, I think it was frustrating that the taskforce's purpose ignored the other side of the finance coin - equity finance.

Securing a loan will always be tricky for pre-revenue or early stage start-ups seeking funding. Mezzanine finance, bonds and supply chain finance don't help much either. Bank lending policy will rightly assess risk and that risk will naturally be much higher for a company that either hasn't started trading yet, or is still nurturing its first year's cash flow.

The plea by politicians and the general public to "get banks lending" again to start-ups puts the banks between a rock and a hard place. In truth they never really have lent to pre-revenue businesses and nobody, especially tax payers, wants the financial institutions to expose themselves to the level of risk that was the catalyst behind many of the problems we are facing today.

The Breedon report fails to address the plight of entrepreneurs' funding and will do little to help those starting up in Britain. The National Loan Guarantee Scheme (NLGS), which was also announced last month, seeks to give businesses access to "loans with interest rates one percentage point lower than those available outside the initiative." This is admirable, but a company that recently raised £180,000 on Crowdcube had been offered a loan with a whopping 15% interest rate before opting to crowdfund its next stage of growth. Would it have made any difference if this was 14%? I doubt it.

Missed opportunity

In my opinion the taskforce missed a trick by limiting its scope and not examining how it could positively affect equity finance in the UK. 

Venture capital, business angels and crowdfunding are all sources of equity finance for businesses. In particular, equity-based crowdfunding solutions have emerged alongside peer-to-peer lending and invoice auctioning as a genuine alternative to the status quo and deserve similar levels of support.

Tim Breedon prophesied in his report that, "access to finance is expected to become more acute" and so diverse sources of finance to help pre-revenue as well as growing businesses are essential, especially for Britain's next generation of businesses. 

For more information on Crowdcube click here, www.crowdcube.com.

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