Small businesses across the country are encouraged to hear the Chancellor’s plans for a more favourable business environment, with 600,000 SMEs to be taken out of business rates whilst 250,000 firms will pay less in business rates; loopholes being closed and the doubling of Small Business Rate Relief permanently. However the Chancellor did not address the biggest challenge faced by the UK SMEs: Funding.

Much effort, political machinations and column inches have been consumed on ‘access to finance’ for SMEs. The focus to date has been on the volume of finance, and rightly so. However the debate now needs to shift on to the quality of finance that SMEs receive – namely the price, terms and conditions, type and appropriateness of what is supplied.

With bank overdrafts for smaller businesses down almost 50% in three years, there are fewer options available for small businesses looking to manage cash flow efficiently, and therefore grow. Many businesses are holding cash in order to cope without an overdraft.

This comes at a huge cost to the economy, as cash held in the business is not being reinvested: the firm isn’t hiring a new member of staff or buying the technology needed to increase productivity and efficiency.

There is a disconnect between small firms and some sources of investment capital

The business climate is fragile.

There are signals that exports are dwindling, despite a weaker pound. Commodity prices remain low, at levels not seen for five years or more. The spectre of deflation continues to loom large and negative interest rates are a real threat. All this, coupled with the uncertainty surrounding the UK’s membership of the EU given a referendum is just three months away.

Implement the referral scheme enshrined in the SBEEA (2015) to ensure that businesses rejected for bank finance receive the products they need from alternative providers, on appropriate terms.

This provision of this new law passed in the spring of 2015 is sadly still not implemented one year later, and recent commentary suggests that businesses might have to wait until at least autumn 2016 for this to go live. Getting this right is fraught with difficulty.

In effect, a state utility is being created, with the work done by private contractors (aggregator platforms) that will look to maximise profits. It is unclear what mechanism will be put in place to ensure that SMEs are referred appropriately and that this results in positive customer outcomes.

Further, it is also unclear what banks or the government will do to encourage more businesses to apply for bank finance, thus creating referrals – most SMEs today are ‘discouraged borrowers’ and are therefore unlikely to apply to a bank in the first place, and will therefore not enter this system as it stands today.

Growing businesses have been turned off traditional bank finance

Remove any remaining red tape that’s stopping the British Business Bank (BBB) from deploying capital to SME finance providers.

The BBB operates into modes. BBBIL, the commercial arm, runs an Investment Programme, borne out of the Business Finance Partnership. The funding available was extended to £400M at the 2014 Autumn Statement, with the aim “to promote volume and diversity of supply of lending to smaller businesses by encouraging new entrants and supporting the growth of smaller lenders in the market.”

Further extensions were announced at the 2015 Autumn Statement, including funds for regional areas, including the so-called ‘Northern Powerhouse’.

However, according to the 2015 annual accounts, over 40% of these much needed funds were still yet to be committed, and less than 10% were actually being lent out. Very few new SME finance providers have received BBB funds, and this is stunting SME, and UK, growth.

Help to Grow (H2G) is a new initiative that has emerged from the non-commercial arm of the BBB that has previously operated the Enterprise Finance Guarantee scheme. On paper, H2G could be an important driver of finance to export led SMEs. Re-opening EFG to new lenders, with more diverse offerings, e.g. alternative overdrafts, would also be a welcome announcement.

Act faster on the proposed remedies put forward by the CMA investigation into the supply of SME banking services.

The CMA process needs to run its statutory course, but many of the remedies put forward will clearly increase competition and could be accelerated now. For example, a price comparison website for SME banking products where banks and alternative providers can compete head to head, and greater data sharing by banks to help business source finance more readily elsewhere.

The latest indications from the CMA is that the timetable for this work is actually getting longer, not shorter, as they seek to consult more broadly on the remedies proposed.

The financial services industry can feel opaque to 'main street' businesses

Look for opportunities to increase price transparency within the commercial finance industry.

As a consumer, thanks to regulation, we’re used to seeing an APR on finance products. But SME finance is largely unregulated, and promotions need not carry an APR. This allows some providers to hide fees and unanticipated costs in complex terms and conditions.

This means some businesses pay more than they should for finance, while others struggle to compare providers and miss out on the best deal – in both cases this increases costs and limits growth. This is why we started the APR4SMEs campaign and have actively sought the support of government, industry and regulators to achieve this badly needed change.