Britain’s medium-sized businesses (MSBs) are entrepreneurial firms, normally with a turnover of between ten and one hundred million pounds, so they are already well up-and-running businesses, but generally not household names. They are companies such as Daisy Group, a business communications provider, which has already grown considerably to become a larger “M”; international architects Benoy; and pharmaceutical manufacturer Aesica.
Established, thriving firms, MSBs are sometimes referred to as “gazelle” companies because of their huge potential to spring into rapid growth. Indeed, recent research by Millward Brown for the CBI, on the outlook for MSBs, showed 82 per cent of the 200 firms surveyed were confident the next five years would bring further growth.
But one of the biggest challenges these firms face is securing growth capital to invest in things such as new machinery, training or IT systems, to enable them to continue to innovate and boost their productivity. That’s because, despite it still being really important to growing firms, since the financial crisis the UK has rebalanced away from traditional bank debt due to balance sheet restructuring and regulatory change.
The CBI wants to see politicians getting behind a UK market for privately placed debt, which could unlock around £15 billion of funds across the UK economy
Despite the encouraging increase in short-term alternative finance, the lack of long-term growth capital and difficulties in accessing trade finance, are impacting on medium-sized businesses’ ability to grow.
In the same way that the profile of alternative finance has increased, the CBI wants to see politicians getting behind a UK market for privately placed debt, which the Breedon Review estimates could unlock around £15 billion of funds across the UK economy. The next government should build on the positive tax changes for private placements announced in the Autumn Statement by lowering the threshold to £5 million and clarifying that they will apply to loans as well as bonds. And, we need to fast-track industry efforts to standardise the documentation for this new market.
Equity can be the best source of growth capital for firms with riskier business models, but has long been underutilised in the UK. Some 81 per cent of small and medium-sized businesses with direct experience of it would recommend equity to another business. But only 1 per cent of smaller businesses use external equity, and only 18 per cent and 5 per cent of medium-sized businesses use private and public equity respectively.
The government should also look at how it can use the tax system to boost the use of equity finance by growing businesses. At the same time, the British Business Bank should offer a public-facing one-stop shop to help businesses navigate different financing options.
The UK rightly has an ambitious exports target of £1 trillion by 2020, the majority of which will have to be tapped from high-growth markets by ambitious medium-sized firms. But two thirds of global trade finance providers (69 per cent) say complex anti-money laundering regulations and “know your customer” requirements are acting as a major barrier to firms getting the trade finance. Of course, we need a robust anti-money laundering regime, but the government must make sure its application is not overly cumbersome and complex for growing businesses.
We also need to look at how growing businesses are supported in their everyday operations. Infrastructure, such as transport, energy and broadband, is the hard-wiring of our economy, but we’re still not investing enough to support the UK’s growth ambitions. The majority of the £466 billion investment needed by 2020 to keep our infrastructure up to date needs to come from the private sector. But investors are being held back by uncertainty over the future pipeline of projects.
That’s why we’re calling on the next government to establish an independent infrastructure body to determine future investment needs and look at innovative solutions, such as “bundling” smaller projects together, to create an attractive proposition for institutional investors.
With the right support, many of the UK’s medium-sized firms can become internationally renowned brands of the future, boosting jobs and growth across the country.
