MPs to investigate challenges SMEs face when seeking finance

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An influential committee of MPs has launched an inquiry into the challenges faced by small businesses when seeking finance as companies come under mounting pressure from soaring borrowing costs.

The cross-party Treasury committee will examine how easy it is for small firms to access finance, the role of financial innovation and the regulation of small business lending.

It comes as the Bank of England drives up interest rates to the highest level since the 2008 financial crisis, adding to the pressure on businesses seeking to borrow money.

Harriett Baldwin, the Conservative chair of the committee, said: “Small businesses are the lifeblood of local communities, powering economic growth and fostering innovation and an entrepreneurial spirit. As a committee, we’ll be examining whether small businesses are able to access the finance they need to grow and develop, whether there is adequate regulation of the sector, and if government can take a more active role to support business growth.”

MPs will investigate the role of the Bank’s term funding scheme, which incentivised high street banks to lend to small businesses. Launched after the 2016 Brexit vote and extended during the Covid pandemic, it has since closed to new borrowing.

The committee will also examine credit reference agencies and the support from the government available for firms.

Also being considered are the role the government can play in improving access to small business finance, the impact of Covid schemes on businesses, and how useful the British Business Bank is.

The investigation comes amid concern over access to finance for businesses from across the political divide. Labour has pledged a shake-up of financial support, while Jeremy Hunt earlier this year announced the government’s “Edinburgh reforms” to relax City regulations to encourage more lending in the UK economy.

Among the questions they are asking is whether securing access to finance for SMEs is particularly challenging for women, people from ethnic minorities or from particular social backgrounds and, if so, what should be done about it. They will also look at whether finance is available to allow SMEs to scale up from venture capital funding.

Tech expert Josh Boer, head of sales, Europe, VeUP said: “With stubborn inflation and rising interest rates, giving SMEs access to funding should be a top priority to drive growth and get the economy moving again.

“Our entrepreneurs and innovators shouldn’t have to beg to be supported. The systems should already be in place so that investors are lining up to help, spotting a fantastic opportunity and turbocharging the next generation of SMEs.”

Steven Mooney, CEO of FundMyPitch said, “The lack of access to funding for UK entrepreneurs warrants a parliamentary inquiry and more. SMEs make up the vast majority of businesses in the UK, spreading opportunity, skills, and employment, yet so many of them aren’t taken seriously enough by investors and the big banks.

In tough economic times with trading costs surging, getting financial backing is make or break for many of these innovative companies. This inquiry needs to explore the mechanisms in place to enable valuations and allow up and coming companies to have a platform to reach the investors they so desperately need to drive growth for the long term.”

Fintech entrepreneur Khalid Talukder, co-founder, DKK Partners said, “The chronic underfunding of SMEs will have severe economic consequences if we fail to act. This inquiry needs to get to the bottom of why accessing credible financial support is such as challenge in the UK compared to other parts of the world.

“Fast-growing companies need finance to hire talent, develop their product offering and compete in the global arena. Key to this effort should be encouraging international trade and giving them access to the latest payments technology to allow them to operate in dynamic emerging markets.  Otherwise, will fall behind rapidly as other countries take the initiative hence harming our own economic growth,” added Talukder.

ClimateTech expert Laimonas Noreika, CEO and founder of HeavyFinance said, “Without funding systems in place, scale-up companies and larger businesses will not only struggle to grow, there is also a risk they deprioritise tackling emissions and developing environmentally friendly business models.

As part of this inquiry, MPs need to explore why access to finance is such a big issue but also the role funding plays in improving the wider economy and the environment. We cannot have a system in place where society and the government tells company owners to go green, and then denies them access to the funding they need to do it,” he added.