Barriers to Growth: Experts see disruption on the horizon

NEW models of funding such as crowd finance and the growth of challenger banks, will help shake-up the small business lending market, a panel of experts has said.

Addressing TheBusinessDesk’s Barriers to Growth seminar in Manchester, in association with law firm Berg, there was consensus too that it will take considerable time for the major lenders to be forgiven by businesses and consumers for a series of high profile scandals such as interest rate SWAP mis-selling, fixing Libor rates and most recently foreign exchange rates.

The panel, comprised Reuben Berg and Alison Loveday from Berg, Phil Orford, the chief executive of small business lobbying group the Forum of Private Business, Andy Veares, head of corporate banking at Metro Bank and two regional entrepreneurs Al Mackin of Formisimo and Lee Birkett from eMoneyUnion.

While there was not huge confidence the Competition Market Authority’s investigation into the dominance of the big four banks, Barclays, HSBC, Lloyds and RBS on the small business lending market, will yield immediate results, there was a feeling among that panel that change is coming.

Reuben Berg, senior partner and founder of Berg despite the restrictions lobbied for by the banks, the CMA review itself was “good news” and believes that technology -in the form of crowdfunding and other peer-to-peer lending – could be about to shake-up the finance sector in the same way as it has retail.

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Alison Loveday said while the big banks had become too dominant and had abused their position by selling inappropriate products and services to some clients, it is important to “move the debate on”.

“We need to realise that lending will never get back to the pre-2007 days. Small business owners need funding to grow and must take clear advice on what is available and prepare robust business plans.

“We need banks lenders, regulators and business owners to speak the same language and to understand that everyone needs to ‘take a balloon home from the party’.”

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Phil Orford said businesses and banks both need to “up their games” to address the funding gap, stating: “Growth is being subdued because banks small businesses are borrowing less and the banks are being more demanding”.

He said access to finance was not the sole barrier to growth small firms face. Other major problems include regulation, late payment, the rising cost of doing business and uncertainty over Europe. On this latter point he said it was crucial the debate over the UK’s future relationship with its largest trading partner is “focused on the economy, not politics”.

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Andy Veares explained  about how and why MetroBank, launched in 2010, is a new and different proposition.

“We don’t have branches, we call them stores. We want fans, not customers, we want people to love their bank. We have a different culture and approach – we don’t sell other services and are open 362 days a year 8am until 8pm.

“We don’t hire people who don’t smile when we interview them, and I am benchmarked on my ‘zestiness’ in my appraisals.”

He said MetroBank, which has opened at 40 locations around the M25, has plans to expand into the North West, but not in the near future.”

Al Mackin, founder of digital marketing  business theEword and also Formisimo, said for many tech-start ups mainstream funding is not available – hence his use of both angel finance from Seedcamp and the North West fund.

Cheshire businessman Lee Birkett meanwhile is a passionate advocate for crowdfunding, having raised £427,000 for eMoneyUnion from 100 investors.

He said: “It’s cost effective and transparent and gives you access to vast amounts of cash. I believe peer-to-peer lending can change the financial landscape for good – it’s only going to drive more funding to small businesses where the banks are currently saying ‘no’.”

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