May 2013

Small businesses slash use of external funding

Small businesses in the UK are still not borrowing money to fund their growth, according to a recent survey by the SME Finance Monitor. Figures show that only 39% had used external finance in the first quarter of 2013, a drop from 50% in the same quarter last year. It is the lowest rate since the survey began in early 2011.

However, the causes are far from clear-cut. It appears that some businesses (7% in fact) that were seeking finance have been discouraged and have subsequently given up, perhaps due to the hassle of the process or because of unsuccessful inquiries with their bank. However, the majority of companies surveyed didn’t have any intentions of applying for funding at all, suggesting that in the current economic climate businesses are choosing a risk-averse route, preferring to pay down debts instead of borrowing.

Boris Johnson, Seedrs and TCIO rally round to form £1 million prize pot for next big London tech start-up

A competition supported by the Mayor of London, Boris Johnson, has been launched with the aim of encouraging the growth of the next £100m technology company.

The Million Pound Startup initiative will provide one enterprise with the chance to secure £1m investment. The competition is open to anyone over the age of 18, regardless of location. Applicants must turnover less than £1m a year, be fewer than ten years old and be willing to relocate to London. The £1m investment will be supplied via a combination of angel funding, institutional capital and equity crowdfunding. Seedrs is handling the process, with backing from Digital Shoreditch, KPMG and the Tech City Investment Organisation.

The competition is part of London’s Digital Shoreditch 2013 festival, which celebrates the ingenious, technical and entrepreneurial talent of East London and Tech City.

Tech City funding vacuum

According to the recently released Tech Futures Report, almost a third of Tech City business owners feel that their enterprise’s success if hindered by difficulties accessing the necessary capital. Although many are managing to finance themselves through a mix of angel investment, venture capital firms and bank loans secured on personal assets, they believe that investors are too risk-averse in the current climate and that banks are not dishing out enough cash. In addition, tentative links have been made between the lack of cash available to the flagship tech hub, and the redundancies experienced by staff in a fifth of Tech City companies.

The funding gap in UK science and technology startups has been acknowledged by the Government and the media, who have (somewhat melodramatically) dubbed it the ‘Valley of Death‘. It is interesting to have their findings echoed on the ground among the companies themselves.

Record £440m for innovative companies

The Technology Strategy Board (TSB), the UK’s innovation agency, has been given a record £440m budget to support innovative businesses and drive growth across the UK. The funding boost represents an increase of over £50m from last year. Technology areas that will benefit from the investment include renewable energy, future cities, advanced materials, satellites, digital technologies and healthcare. The TSB also aims to expand opportunities for UK innovation to access big foreign markets in India, China and Brazil through trade-missions, involvement in EU programmes and bilateral agreements with other countries.

A delivery plan, set out by the TSB, has made commitments to invest over £300m through 75 new competitions that will help fund innovative projects across the economy. Some £55m will go to programmes in the Healthcare sector, £25m to Energy, £20m to Transport and £25m to support initiatives in High Value Manufacturing.

Warning over fees charged by asset based lenders

A campaign led by a former business owner, Brian Moore, has raised a number of concerns regarding weaknesses in the asset based finance industry, and has called for government regulation.

The asset based finance industry is currently worth approximately £18b and enables around 40k UK SMEs to access funds, improving their cash-flow, by using their assets as collateral.

It has been alleged that some lenders are working with “friendly” administrators to exploit “termination fees” in an attempt to profit from business insolvencies – at the expense of HMRC and unsecured creditors. Moreover, the industry is not regulated even if the service is provided by a high street bank; this is a fact that has shocked those that have become enlightened to it, particularly as there is no overseer in times of crisis.

The industry’s trade body, The Asset Based Finance Association, has rejected the claims, stating that it “fundamentally contests the picture of the industry” that Mr Moore illustrates. HMRC has acknowledged the claims and is examining them.