The Chancellor’s 2011 Autumn Statement, a view from the trenches…
From my dusty startup garret, I have to say that there’s something Just Plain Wrong with the way the Chancellor of the Exchequer George Osborne sees the world of small business. On the one hand, his 2011 Autumn Statement announces the Great Big Match-Funding Angel Bribe formerly known as BASIS (which even the BVCA now openly calls a “liberalisation” rather than a “simplification”):-
[p.7] The Government will: […]
launch a new Seed Enterprise Investment Scheme (SEIS) from April 2012, offering 50 per cent income tax relief on investments, and will offer a capital gains tax exemption on gains realised in 2012–13 and then invested through SEIS in the same year;
Now, unless I’ve missed something really obvious this surely means that UK angels now have an exceptionally good reason not to invest in anything between now and April 2012 when the scheme goes live (subject to subsequent European ratification, which is by no means certain). But then again, it already takes such a ridiculously long time to close an investment round these days (9 months? 12 months?), the entrepreneurs most likely to be inconvenienced are those who are trying to close a round right here right now. So, even though it’s a great bribe, nobody should expect to see a tsunami of UK startup investment on TechCrunch in the next six months, OK? *sigh*
On the other hand, the Government really, really wants to find a way to encourage banks to lend to SMEs, though apparently with neither a carrot nor a stick…
[p.7] The Government will: […]
introduce a National Loan Guarantee Scheme. Up to £20 billion of guarantees for bank funding will be made available over two years. This will allow banks to offer lower cost lending to smaller businesses, subject to state aid approval;
Hilariously dismal! As my business bank manager patiently explained to me last month, UK banks don’t want to lend to small businesses for the simple reason that they are now measured by their balance sheet. So, unless that startup happens to have any kind of collateral to put up (and no, intangible stuff such as IP and patents doesn’t count, but thank you for asking), the answer is basically going to be a no at any price – reducing the potential spread by 1% will make no difference if the lending decision pointer remains rusted on [NO].
So it would seem the government has painstakingly constructed a microeconomic lending lever to pull that isn’t connected to any actual banking machinery. On the bright side, if no bank takes up the offer, this could be the cheapest policy announcement ever (if admittedly also one of the least effective).
Plainly, the Government knows that SME lending is just plain broken: the level of lending done under the Enterprise Finance Guarantee scheme has continued to collapse over the last couple of years, for the simple reason that the banks now have no incentive to lend to startups at any price. Moreover, surely the way that Project Merlin has manifestly failed to deliver any real lending to SMEs (i.e. not converting overdrafts to factored lending at gunpoint) is as big a red warning flag as the Government could ever require? Why is nobody talking about why Project Merlin has failed? The most relevant commentary I could find on this seemed to amount to a big shrug, that maybe this revised scheme somehow replaces Project Merlin?
Oddly, the macro shift in bank lending strategy from working capital to invoice factoring came at the moment when invoice factoring become (sort of) democratized via independent platforms such as MarketInvoice. So if working capital & lending is history, and even factoring is better done elsewhere, what really are UK business banks now for? With the High Street in freefall, the poor dears haven’t even got coffee shop franchise presentations to lend against now. It’s tough being a bank when you don’t actually want any customers, right?
And finally… on the third hand (there’s always a Third Way with modern government, thanks Tony),
[p.7] The Government will: […]
make available an initial £1 billion through a Business Finance Partnership, which will invest in smaller and mid-sized businesses in the UK through non‑bank channels.
If you’re a startup looking at this, all you basically need to know is that the chance of any of this money arriving in your direction is zero. No, by “smaller” they don’t mean you at all, they mean established companies that aren’t quite as big as they’d like. Just so you know!
What a load of pitiful rubbish. 😦