Nation's SMEs need better support amid Middle East turmoil: Justin Parr
Few businesses if any are immune from the Iran conflict fallout, with rising energy prices and a climate of uncertainty. Yet there isn’t a level playing field in how companies can respond to this.
Large corporations, for example, have resources to at least partly mitigate some of the impact, such as treasury teams that can hedge against rising commodity prices and closely manage shipping costs. These businesses also have the links into government to help lobby for the support they need.
By contrast, smaller companies have far fewer resources and in-house knowhow to do something similar. So far ministers have said or done little even to acknowledge how SMEs are suffering, let alone offer bespoke support for the effects of a war that, as chancellor Rachel Reeves has been keen to point out, the UK didn’t start.
My company Treyd supports smaller businesses across Yorkshire, so we see first-hand the entrepreneurship and dynamism that power the county’s economy. In the time since the conflict began on February 28, we’ve been acting rapidly to support clients, helping many bridge the gap between buying stock, often from overseas, and receiving the money from customers after selling their products – a period of time that has been getting longer due to supply chain challenges.
It’s an example of how a trade finance provider can respond quickly to world events.
But I also think the government could be doing more to help SMEs through this difficult period, especially as we don't know how long the conflict will last. Two areas in particular deserve the attention of ministers.
The first is the UK’s Bank Referral Scheme. This well-intentioned initiative is designed to help businesses whose requests for funding are turned down by established lenders. In principle the scheme works by these companies being added to a list that can be accessed by alternative funders, which can step in if appropriate. But in practice it hasn’t operated like that because not all rejected businesses are properly referred and many smaller funding providers can’t access the list.
Last October the Treasury invited feedback as part of its consultation into the scheme with the intention of identifying ways of improving it. It’s a noble aim but, months later, we’ve no update on what ministers plan to do to make it work better. SMEs need reassurance that this is a priority.
The second area that needs attention is the existing Growth Guarantee Scheme (GGS).
Another sensible initiative, the GGS provides lenders with a 70 per cent government-backed guarantee – the idea is to increase risk appetite and push funders to back more SMEs. Unfortunately, again, in reality it isn’t working. Many of the larger banks signed up actually aren’t particularly interested in funding SMEs, while alternative funders that specialise in SME lending aren’t admitted to the list of accredited lenders.
There’s an urgent need to reflect the competitive landscape that every SME contends with by expanding the GGS programme to include alternative lenders, replacing the banks that are retreating. Increasing the level of guarantee to 80 per cent would also boost the supply of funding to SMEs with minimal cost to the taxpayer.
While the chancellor is right that the Iran war is not one of the UK’s choosing, all governments must deal with shifting world events. SMEs could and should be getting more and better support.
Justin Parr is chief credit officer at trade finance provider Treyd