Small business minister Kelly Tolhurst MP talks to Kathryn Gaw about the challenges facing smaller firms in the Brexit climate and the role of alternative finance in supporting the sector
DEPENDING ON WHO you ask, the government is either doing a great job of promoting alternative lending options and small business funding; or it is the reason why peer-to-peer lending has yet to enter the mainstream.
But like it or not, the opinions which are formed in the hallways of Westminster Palace will go on to influence legislation, regulation and public perceptions of the alternative finance community. So what do our politicians really think about P2P lending for small- and medium-sized enterprises (SMEs)?
“I’m very much in favour of P2P lending as a finance option for SMEs,” says Kelly Tolhurst, MP for Rochester and Strood, and the current small business minister.
“When you actually look at the options that are available to SMEs for financing, P2P lending has opened up new opportunities, and as small business minister, I am pleased to see the growth in that area.”
However, despite these encouraging words, it is clear that there is still some way to go before P2P is fully embraced by the powers that be. When asked to name five P2P platforms, Tolhurst was only able to name one – she would later ask Peer2Peer Finance News to withhold the name of the platform she was familiar with, to avoid showing preference.
She also admitted that she does not personally invest in P2P, although she wouldn’t rule out an investment in the future.
“It’s not something that I’m particularly focussed on,” she says. “I know people who invest and it is a great opportunity for people who want to use their capital and maybe invest in schemes that they actually like. A lot of the people I’ve come across like the fact that it’s something different and they feel like they’re contributing, so that’s a really good selling point to get investors to look into these platforms.
“In regards to me, no – my focus is trying to manage my constituency of 100,000 people and hold down a junior minister’s job, so looking at my own financial interests going forward is the least of my particular worries. But would I invest in a P2P platform if I wasn’t a minister or involved in politics? Yeah, I may well do.”
If this doesn’t exactly sound like a resounding endorsement of the P2P lending community, it is only because Tolhurst – like most of her colleagues in the Department for Business, Energy and Industrial Strategy (BEIS) – is still learning about the opportunities of P2P as a viable alternative to bank lending. Banks are still very much the first port of call for small businesses in need of start-up capital and growth funding. According to the most recent Bank of England statistics, business borrowing soared to £3.3bn in June 2019, representing the highest growth in SME borrowing since August 2017. However, 75 per cent of that funding came from banks. The remaining 25 per cent came from a combination of debt financing, commercial papers and equity fundraising. While banks still dominate the SME lending sector, there is an interesting shift taking place.
A recent survey, commissioned by P2P lender ThinCats, found that younger SMEs are increasingly seeking out alternative sources of finance. Just 31 per cent of SMEs under 10 years old will approach their bank first when seeking funding, compared to 61 per cent for businesses established between 10 and 20 years ago. Tolhurst says that the statistics prove that there is “absolutely” an opportunity for alternative lenders to fill this gap.
“As small business minister my overall objective is to make sure that SMEs who want to borrow and who are in the right place and have got the right plans to borrow money are able to do that,” she states.
“And as a government we are keen to work with all kinds of financial institutions and investors to look at ways in which we can make sure that the finance is getting out to our business sector, so I very much welcome the increase in lending that we’re seeing in this sector and hopefully working together with the industry we’re able to see that growing over time.”
Tolhurst understands the pressures of running a small business. In 2002, 13 years before becoming an MP, she started a marine survey business with her boat-builder father, and she still remembers how difficult it was to find funding.
“At that time the only options were very, very, limited,” she says. “You could only go into your high street bank and unless you had particular contacts you were very limited.”
In 2011, an interest in local issues inspired Tolhurst to run for Medway Council as a representative for Rochester West. When former Tory MP Mark Reckless defected to UKIP in 2014, she was picked as the Conservative Party candidate for Rochester and Strood. Although Reckless held on to his seat in November 2014, just six months later, Tolhurst won his seat with a majority of more than 7,000 votes. She was re-elected in 2017, and in July 2018 she was appointed Parliamentary Under Secretary of State for the Department of BEIS – in other words, small business minister.
As an MP, she has been vocal in her support for small businesses, even as Brexit politics threatens to drown out any other issues. Tolhurst campaigned as a Remainer, but in the recent Tory leadership race, she backed Boris Johnson for prime minister, and she has indicated in the past that she would support the PM through a no-deal Brexit. But she insists that the UK’s small business community would not suffer in the event of a no-deal.
“When I’m out and about talking to small businesses they tell me the main problem is the uncertainty,” she says. “All small businesses have said to me that certainty is what they need; they can put their plans in place to deal with all eventualities but it’s the uncertainty that’s caused them the problem.”
She has pledged to work closely with all lenders to ensure that SMEs still have access to finance and the funding that they need to grow.
“The government’s top priority is around supporting businesses as we prepare for Brexit, and I’m pretty confident that’s happening,” Tolhurst confirms. “We’ve stepped up a gear for our preparations, even in the eventuality that we leave on 31 October without a deal.
“What I want is to leave the European Union on 31 October,” she adds. “That’s what we want to deliver, we’ve got a Prime Minister who would much rather be leaving the European Union on 31 October with a deal, but we are committing to leaving on 31 October and if that means without a deal that is what we’ll be doing.”
The government has conducted stress-testing on banks to ensure that they have enough resources to continue lending to SMEs in the event of a no-deal Brexit. For the wider lending community, the British Business Bank (BBB) is there to offer a safety net for SME lenders.
The BBB is wholly-owned by the government, and under Theresa May’s government a £200m ‘topup’ was offered to replace the European Investment Fund cash that is likely to be discontinued after Brexit. More than £7.5bn is expected to be invested in British businesses over the next decade, via the BBB’s investment arm, British Patient Capital.
According to Tolhurst, if a P2P lender is keen to get onto the government’s radar, the best route is via the BBB.
“The BBB is our main partner in regards to working with the industry to get alternative funding,” she says. “If P2P funding platforms are interested and – I would hope – if they’re good, then I would definitely encourage them to come forward and to talk to us.”
Speaking on condition of anonymity, a representative of the BBB told Peer2Peer Finance News that Tolhurst works closely with them and is well liked for her hard-working attitude and accessibility. When Tolhurst asks P2P lenders to “write to me” with concerns and suggestions about how to improve access to SME funding, you get the impression that she genuinely wants to hear from lenders, of all stripes.
“The development of P2P lending has opened up options for SMEs,” Tolhurst says. “It’s now more widely available, and we are supportive of new products and ways of working to make sure that funding and the accessibility of finance gets out to the SME market.
“It’s an education process as well,” she adds. “A lot of small businesses, if they’ve not had experience of raising finance before, they won’t have heard of P2P lending.”
These words will likely ring true with the many P2P lenders who have struggled to get their message across. And while the government’s focus on educating SMEs is admirable, and badly needed to ensure the growth of the P2P sector, it is clear that some further education is also needed within Westminster itself. Tolhurst is open to learning – it is up to the lending community to teach.
This article featured in the September issue of Peer2Peer Finance News, now available to read online.