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Peer2Peer Finance News | November 23, 2017

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UK SMEs face funding black hole after 2020

UK SMEs face funding black hole after 2020
Anna Brunetti

THE UK government must set up a growth fund for the country’s small- and medium-sized enterprises (SMEs) to replace EU support, or it risks putting the sector into a “business support black hole” from 2021, the Federation of Small Businesses (FSB) has warned.

The trade body called on the government to set up a new unified SME fund before Brexit is finalised, replacing both EU funds and the existing Local Enterprise Partnerships (LEPs) funds.

The EU has committed £3.6bn to support UK SMEs until 2020, but the UK has not budgeted for a similar level of regional development spending after that deadline, the FSB said on Tuesday.

The group recently commissioned a survey of over 1,600 SMEs across the country, which found that almost 80 per cent of respondents had applied for business finance over the last 12 months.

Read more: £266bn of late payments hamper UK SMEs’ growth

Firms in Yorkshire, the North East and the North West were most likely to apply for EU-funded schemes, whilst only nine per cent of London businesses submitted applications over the same period.

The research also showed that nine in 10 businesses looking to grow by 20 per cent or more were likely to apply for such schemes, underpinning a very strong connection between SMEs’ demand for funding and their growth plans.

“Small businesses across the country are staring into a business support black hole from 2021,” said the FSB’s national chairman Mike Cherry.

“This is a particularly pressing issue for the many small firms with growth ambitions and those in less economically developed regions.

“If the next government is serious about developing an industrial strategy that delivers prosperity across all areas of England, it must replace EU funding dedicated to small business support and access to finance after we leave the EU.”

Read more: Funding Circle: UK SMEs set to back Tory leadership

As well as streamlining local funds, the association is proposing to secure funding for the existing “growth hubs” and establish a “what works hub”, to gauge and boost the effectiveness of different schemes.

“Brexit marks an unprecedented opportunity for fundamental reform,” said Cherry. “LEPs and growth hubs must be empowered to tailor and simplify support according to local requirements.

“Ensuring that all small firms are aware of business support schemes should be a top priority.

“We can’t have an environment where small businesses perceive personal contacts or administrative skills as more important to successful applications than genuine need.”

The group also said a reformed UK business landscape should aim to reduce the current bureaucracy of the EU-funding process.

“Small businesses are clear that EU-funded support is a vital lifeline,” said Cherry. “But they’re equally clear that the process for attaining that support can be a real battle.”

Only one in 10 of the respondents who were granted EU funds found the application process straightforward, the study unveiled.

Six in 10 were unhappy with the amount of information required, five in 10 disliked the length of the application process and 44 per cent struggled to handle the excessive reporting requirements after funds are granted.

“It’s not unusual to find small firms giving up halfway through an application because forms are too long or complex, or they fear grants will be clawed back at the first sign of an admin slip,” said Cherry. “Sadly, it’s often the time-poor businesses most in need that struggle in the face of this bureaucracy.”

Read more: UK SMEs bullish on growth despite political woes