Let's Talk About Growth

Chartered Banker and Enterprise M3 Senior Growth Hub Champion Andy Swift kicks of the first of our series of ‘Let’s Talk About Growth’ blogs from the EM3 Growth Hub team. Here, Andy talks about economics, financial resilience and encouraging SMEs to come forward to improve access to finance. 

It’s good news that the Government is once again looking at SME finance.  

Why? Because as the Bank of England increases interest rates, consumer-facing sectors may become unable to agree staff pay demands or pass on price increases to their customers. The front line on fighting inflation will soon be at the door of many of the UK’s Small Medium Sized Enterprises (SMEs) and it’s time now for them to prepare for the financial challenges ahead.  

This economic shock won’t appear as starkly as a lockdown in the pandemic, but in the form of a gradual tightening of consumer spending that could last for some while. And whilst during the pandemic Government ensured business survival through a range of repayable bank loans, those businesses who by necessity took on these borrowings may now find them an impediment sitting on balance sheets and having to be repaid from cash flow that’s going to be squeezed more tightly.  

In fact, this could be a huge issue for business across the UK. As a result of the pandemic, an eye watering £79bn was distributed to UK businesses by way of £1.6 million Government backed loans with a massive 25% of all UK businesses taking out a Bounce Back Loan[1].  

Whilst by March this year 11.5% of the loans made have already been fully repaid, there is still a huge amount of borrowing that was not anticipated by any business at the start of the pandemic: for a sizeable number of businesses, it’s going to take many years trading to pay down these debts. Further, recent figures from the British Business Bank show that equity finance for SMEs fell by 11% compared to last year, to £16 billion with concerns about potential overvaluations, a lack of sale opportunities and rising inflation and interest rates contributing factors to this drop.  

I am concerned on accessibility to our major banks who are clearly withdrawing from high streets and relying more on centralised operating models. Lending by our major banks to start-ups disappeared long ago, but established businesses must have access to expert bankers and not have to rely upon chatbots that are long way from being able to respond to a business calling saying that they can’t pay the wages. New market entrants to the banking sector have brought innovative ideas but with huge market shares, our big banks need to take great care that the service they provide is meeting the needs of their customers. 

My advice to business owners, particularly in sectors susceptible to changing consumer spending, is that they take some time to step back and create a series of scenarios for trading over the next 12 months. By using a simple financial model, they can project scenarios. For example, start by reducing trading income by 5% and combine this with a reduction in gross profit margin and an increase in fixed costs. Any business owner can quickly see how these changes impacts upon break-even points/profitability, which when combining the trading projection with a cash flow forecast it can all be seen through a realistic cash position for the business.  

In my experience it can be surprising how even small changes in a financial model can quickly have an adverse impact on profitability and cash flow, and as I’m sure you will have heard before that ‘cash is king’ particularly in times where resilience and survival are the priorities of the day. Talk to us at the Growth Hub where we have the fabulous Growthmapper tools to help management teams tackle a variety of financial and non-financial challenges, all of which is fully funded by Government.  

Right now, a cross-party Treasury Committee is carrying out an inquiry into SME access to finance, the regulation of small business lending, and the role of Government in all this. In what appears to be a heady mix of economic conditions, I encourage business representative groups and SMEs to participate in this Inquiry through submitting evidence via this link. Submission deadline is 5pm on 13th August.

Access to finance continues to be a major driver for growth so getting the right policy and delivery solutions in place is crucial for the strength of any business. Make sure you have your say! 

If you’d like to talk to us at the Growth Hub about your business, please visit our Start A Business page for further information or call us on 01483 478098. 

About Andy Swift:  

Andy joined the Enterprise M3 Growth Hub in June 2023. Andy is a Chartered Banker with 35 years’ experience dealing with SME businesses at a leading High Street Bank. He was previously Champion Director of Business South and an Associate Programme Director and Business Mentor on the Government funded Help to Grow Management Programme at Solent University Business School.

[1] House of Commons Library Research Briefing 21st March 2023: Coronavirus Business loans schemes