According to a recent CBI report UK companies rely too heavily on debt finance. It said that 50% of small and medium sized businesses used bank loans and more than one-third used overdrafts. Of the remainder only 3% use equity finance: the European average is 7%.
Smaller UK businesses seem to associate equity funding with loss of control. Kaja Hall, CBI chief policy director is quoted as saying:
“We need to shatter the equity finance glass ceiling and encourage growing firms across the UK to use this largely untapped resource. It’s a myth that using it results in loss of control and decision-making. Equity finance is one of the most effective ways for small and medium-sized firms to access investment capital and there are plenty of investors who take a minority stake.”
It does appear that UK business owners are drawn to shorter term solutions offered by their banks: overdrafts and loans. The main problem with this sort of short-term approach to investment funding is that in today’s slow moving economic conditions businesses may need to borrow for longer periods in order to achieve their investment and growth goals.
There is talk that building societies should be given rights to lend to the business community. Perhaps Government could step in to make the present, temporary, Seed Enterprise Investment Scheme a permanent feature of the UK tax system? Time for a rethink. UK businesses need to be able to invest for long term development and the present trend towards short term fixes does not really hit the spot.