It will be carried out in two parts – the first will examine the extent that High Street banks meet the funding needs of Welsh businesses, focusing primarily on the requirements of SMEs (Small to Medium Sized Enterprises).
The second part will look at alternative sources of funding for businesses and the role that the Welsh Government can play in facilitating their development.
As this blog has pointed out on numerous occasions during the last decade, access to external finance for both start-ups and existing businesses in Welsh businesses is fundamental to sustainable economic growth.
I was therefore delighted to accept an invitation from the Minister for Business to head up this review to examine whether SMEs in Wales can get the finance they need to sustain their current operations and support their growth ambitions.
Currently, one of the major brakes on growth is the perception, rightly or wrongly, by the small business community that accessing finance is proving difficult in the current economic climate.
In fact, many business owners I have spoken to during the last four years have voiced their concerns that, in many cases, they simply cannot get money from financial institutions to grow their ventures.
Others have noted that when they do approach the bank, it inevitably results in a review of their finances that, in some cases, results in reduced banking facilities - such as a cut in their overdraft limit -rather than the increased funding initially expected.
On the other hand, when I talk to acquaintances in the banking sector, they say that there is plenty of funding available to support the sector and the problem is actually a lack of demand from small firms as a result of a cautionary approach within an uncertain economic environment.
Therefore, a key part of the review will be to move past the rhetoric and examine the reality of the situation, the solutions required to getting capital flowing into the Welsh business community and what the Welsh Government can do to facilitate and support this process.
I am also keen to be able to look at the regional context across the UK and examine detailed data on banking finance and practices to determine whether Wales is, in any way, disadvantaged when it comes to current lending practice.
For example, it has been reported that certain banks are ‘blacklisting’ certain sectors and, as a result, no finance is available within such sectors. If this is true, and banks are less inclined to lend to sectors such as leisure, this could have a real impact in Wales, as compared to other UK regions, given the higher contribution of the tourism sector to the economy.
Senior bankers have also told me that a future trend will be for banks to move away from supporting smaller businesses and having a greater focus on mid-sized firms that have real potential for growth.
Again, with Wales having a higher proportion of small firms and a lower level of mid-sized businesses than most other regions of the UK, this could also have serious consequences for the ability of the business community to obtain finance to develop further.
I am also fortunate not to be doing this on my own and have the support of an excellent advisory board that not only consists of some of the leading academics in banking and small business finance but also professionals and businesspeople who have been there, done that, and worked with small firms or grown them themselves. They include:
- John Antoniazzi, former partner at Deloitte in Wales;
- Katy Chamberlain, Chief Executive of Business in Focus;
- Professor Robin Jarvis, Head of SME Affairs, The Association of Chartered Certified Accountants (ACCA) and Professor of Accounting, Brunel University;
- Professor Phil Molyneux, Dean of the College of Business, Law, Education and Social Sciences and Professor of Banking and Finance, Bangor University;
- Huw Morgan, former Head of Business Banking, HSBC Bank plc;
- Chris Nott, Chair of the Financial and Professional Services Sector Panel and Managing Partner of Capital Law LLP;
- Professor Stephen Thomas, Professor of Finance, CASS Business School, City University London;
- Mark Woolfenden, Managing Director, Afonwen Laundry
Their advice and wisdom will be vitally important in determining the real facts behind the current situation.
During the next couple of months, I will be discussing this challenge with financial institutions, academics and other key stakeholders in the supply of money to business, including officials from the Bank of England and the UK Treasury.
However, what is really critical to this review is that we get to understand the real situation faced by businesses in Wales and I would urge as many as possible to respond positively to the call for evidence.
A linkedin site “Access to Business Finance Review” has already been set up at which comments can be left, and there is a dedicated webpage on the Welsh Government’s site that contains full details of how to respond to the call for evidence.
I will also be contacting as many business owners as possible during the next few weeks to ensure that we get as full a picture as possible, both good and bad, of their experiences of dealing with financial institutions.
If there is a major issue with businesses accessing finance in Wales, then I can assure you this review will not only get to the heart of the matter but will come up with practical recommendations that, if necessary, can be implemented to ensure that funding is available for those businesses that want to grow and create jobs within the Welsh economy.
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