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Aitken hails ‘new finance’ to help SME growth

Financing the futureCBI Scotland director Hugh Aitken used his maiden public address to highlight the need for businesses to look at sources of alternative finance.

Speaking at today’s Financing the Future summit organised by Daily Business and LendingCrowd in Edinburgh, Mr Aitken said that companies were still faced with difficulties in securing growth capital for investment in areas such as IT and machinery, and in accessing trade finance to boost exports.

Mr Aitken (pictured below) told an audience of more than 80 business leaders that firms also need support from government through investment in infrastructure such as broadband and transport.

He said: “We have an exciting and thriving business community in Scotland and we need to talk it up more.”

He highlighted the need for small and medium-sized businesses to share their experiences about raising finance and more generally about sharing their stories of success.

Mr Aitken, who spent 20 years running Sun Microsystems in Linlithgow before spells with Microsoft and Oracle in the United States, noted the success of companies such as Ellon-based brewery BrewDog, which had used crowd funding not just to access finance but also to connect with its customers via its “Equity for Punks” scheme.

He said that his first 65 days in office had included successful talks with Scottish government ministers including Deputy First Minister John Swinney, indicating that a new era of cooperation had evolved after last year’s divisions over the independence referendum. He revealed that First Minister Nicola Sturgeon had accepted an invitation to address this year’s CBI annual dinner.

On the wider economy he noted that the CBI has upgraded its UK growth prediction for 2015 to 2.7% against a backdrop of lower oil prices and inflation, and that unemployment is now at less than 6% – 5.9% in Scotland and 5.7% in the rest of the UK.

“We expect a strong pick-up in business investment over the coming months – with average business investment as a percentage of UK GDP will rise from 9.5% between 2008-2013 to 11% between 2014 and 2016,” he said, adding that access to finance had begun to improve.

“Firstly, credit conditions are improving with credit more readily available and demand for finance set to increase.

“Businesses are increasingly using capital markets to raise finance – and net capital market issuance by firms across the UK is the highest in five years.

Hugh at Summit

“Secondly, we now see an exciting, diverse finance mix increasingly available to firms. New ‘alternative’ forms of finance from both banks and non-banks have grown hugely and businesses are increasingly taking up these opportunities.

“However, in Scotland many businesses may not be aware of the potential of alternative sources of finance for start-ups and growth capital.

“For example, FSB in Scotland has said that less than 30% of their membership have any awareness of peer-to-peer lending and asset-based finance.

“Yet the alternative finance market in the UK has more than doubled in size year on year and was predicted to reach £1.74 billion in 2014.

“That’s because of what the CBI call a ‘new normal’ in finance. This means an end to an overreliance on banks for all types of lending, as banks restructure their balance sheets and respond to regulatory change Options can only be positive for businesses – equipping them with the ability to make a genuine choice on what type of finance is best for them.

“Thirdly, in our conversations with firms operating across the UK access to finance is no longer cited as the main barrier to the successful running of their business.

“In our conversations, we now hear that access to skills – and skilled workers is now more of a challenge to business. Nonetheless, firms still face challenges when accessing finance – which means we cannot take our foot off the pedal.

“And actually – access to skilled staff links to access to finance, as growing firms may not have the necessary skills to find the best option for them.”

He said  firms are facing challenges on a number of levels.

“One of the biggest challenges these firms face is securing growth capital to invest in things – like new machinery, training or IT systems – so they can continue to innovate.

“Despite the encouraging increase in short-term alternative finance, the lack of long term growth capital is impacting on businesses’ ability to grow.

“For instance, equity finance can be the best source of growth capital for firms with riskier business models. But only 1% of smaller businesses use external equity finance

“Despite the fact 81% of small and medium-sized businesses with direct experience of it would recommend equity to another business.

He said the  CBI had developed tools to boost awareness of finance options for firms and guidance to “good business lending”.

Its recent Financing Our Future Economy report sets out action points for the incoming UK government to spell out how they can bridge the gaps, including changes to the tax system to boost the use of equity by growing businesses – to the establishment of an independent infrastructure body to determine future investment needs and innovative solutions.

“So, more needs to be done to ensure Scottish and UK policymakers, as well as the finance industry are really behind our growing firms.

“This agenda becomes ever more imperative at a time where although the economic situation has improved – the political risks have increased. We’re fast approaching the most unpredictable election in a generation.

“The different policy agendas for business could vary hugely depending on which party or parties are in government. However – one this is clear that with the right support, Scottish firms can reach their ambitions and play their invaluable role in boosting jobs and growth across the country.

“The CBI will be working hard to ensure businesses receive the support they need – an champion this agenda with policy makers.

“We mustn’t forget that things are undoubtedly looking up – we have now have a market full of new and exciting finance options for firms.”

Alternative sources

Stuart Lunn, who launched the LendingCrowd platform last year alongside serial technology entrepreneur Bill Dobbie, told the summit about the different forms of alternative finance available to businesses, from peer-to-peer lending and invoice trading through to equity crowdfunding.

Lunn highlighted the benefits of crowd lending for both investors and borrowers, such as the ability to receive risk-adjusted returns and flexible access to capital.

So far, LendingCrowd has raised more than £1 million from in excess of 650 investors for 20 businesses.

Lunn pointed to successful examples, such as raising £73,000 from 20 investors for Sort My PC and £20,000 for Dalgety Bay-based Laundry Pro.

He said that one of the attractions for potential borrowers was that they could receive feedback from LendingCrowd’s staff on how their credit risk had been scored.

summit

Game for crowdfunding

Paul Farley (above), chief executive at Dundee-based TAG Games, explained why he had chosen LendingCrowd to raise £150,000.

TAG, which was founded in 2006, creates its own games as well as designing titles for clients including the BBC, Channel 4, Electronic Arts and Unisoft.

Farley said that his company had raised seed financing but had struggled to borrow larger amounts of money because banks find it difficult to put a value on intangible assets such as intellectual property.

He added that the attractions of using LendingCrowd included the ability to pitch to multiple investors at the same time rather than having to tour around individual funders, as well as its competitive interest rates and easy-to-use website interface.

Farley revealed that TAG is halfway through raising £1m of equity funding and that it expects to double revenues during 2015.

Building brands for bucks

Simon Farrell, managing director at Edinburgh-based marketing design agency Tayburn, highlighted the way in which the internet had changed companies’ relationships with their own brands due to access to information and fragmentation of the media.

“You no longer control your brand,” Farrell explained. “Now it’s about doing remarkable things and being remarked upon.”

Farrell pointed to successful examples of companies doing “remarkable things” such as John Lewis’ Christmas advertisements and Waitrose redesigning its Essential-brand brown sauce bottle following a letter from a seven-year-old boy.

He also highlighted the success of his agency’s work on the People Make Glasgow marketing campaign, which made its way onto BBC Radio 1’s Big Weekend, Alicia Keyes’ speech at the MTV Europe Music Awards and even graffiti around the city.

 

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