ALTERNATIVE

FINANCE MANIFESTO
PRIORITIES FOR THE NEXT UK GOVERNMENT

Contact:
Louise Beaumont
Head of Public Affairs & Marketing
GLI Finance Limited
louise.beaumont@glifinance.com
www.glifinance.com

INTRODUCTION
We believe the focus of the next Parliament
should be to support the small businesses
which are the engine of our economy.
We aim to support the business people
running the 5 million small and medium
sized enterprises (SMEs), lauded by
politicians as the bedrock of Britains
economic growth.

A large proportion of SMEs rely on

external finance in some form. The SME
Finance Monitor, an industry led survey
of SME lending, found in Q2 2014 that
approximately 40 per cent of SMEs used
external finance, with 30 per cent of SMEs
using core products loans, overdrafts
and/or credit cards. Large companies,
generally speaking, have access to
alternatives to bank lending, e.g. bond
markets. Of course SMEs rely on, or have in
the past relied on, the traditional banking
sector.

The truth is that Lloyds, RBS, HSBC

and Barclays, still provide more than 85
per cent of the loans to SMEs in Britain1.

WHO ARE WE?

GLI Finance Ltd (GLI) is the leading investor
in the global alternative finance sector
offering a spectrum of financial solutions to
SMEs via its portfolio of investee platforms.
We invest in alternative finance providers,
offering SMEs a wide range of finance
solutions (such as supply chain finance,
trade finance, loans, bonds, financial
matchmaking, rewards, donations, and
invoice finance) across 18 platforms and
3 continents (North America, Europe
and Africa). For this reason, our priorites
cover alternative finance and our family of
investees as a whole.
GLI is highly supportive of the efforts to
open up the market place for funding and
to improve access to alternative finance
for SMEs, and bigger businesses alike.

FT March, 2015
http://www.ft.com/cms/s/0/d73e2204-c8d3-11e4-b43b-00144feab7de.html#axzz3Vqgwqd5S

5 Million SMEs

5 Million SMEs

With the right levers

The engine of the UK economy.

Current Situation 2015

Among those seeking finance,
there is a widespread perception
that high-street banks are the only
source of funding for SMEs.

The engine of the UK economy.

Full and undiluted implementation of

access to finance regulations by HM
Treasury + British Business Bank
(BBB)

Future Situation 2016

Marketing campaign to support SME

uptake of alternate finance

Those seeking finance can

choose bank or non bank finance.

Increased bank competition

Facilitation of growth of
non-bank sector
10 x designated banks

>85%*
of SME finance

Non-bank finance
regulated
have cash to lend
many options

is provided through
4 banking groups

Over 62%** of
finance applications
are unsuccessful.

Are successful
applicants receiving
the best available
deals?

Refused
finance
automatically
referred to
designated
platforms

FT March, 2015
http://www.ft.com/cms/s/0/d73e2204-c8d3-11e4-b43b-00144feab7de.html#axzz3Vqgwqd5S

In the 18 months to Q2 2014, 62% first time loan applicants were unsuccessful in securing a facility: BDRC
http://bdrc-continental.com/wp-content/uploads/2014/11/Q2-2014-SME-Finance-Monitor.pdf

**

THE SUCCESS OF THE ALTERNATIVE

FINANCE MARKET IS VITAL FOR THE
SUCCESS OF SMES THE ENGINE OF
OUR ECONOMY
PRIORITIES:
An empowered and well-funded
1
British Business Bank
The BBB has been successful in its crucial
role of opening up the market for nonbank SME finance - a model which other
jurisdictions are now looking to emulate.
It is instrumental in delivering the last
governments plans for supporting SMEs.
The BBB will be taking forward the
implementation of the mandatory referral
scheme whereby designated high street
banks will be mandated to refer SMEs that
have been refused finance, to a referral
scheme run by one or more neutral
platforms.

Action: we call on the next Government to

ensure the BBB has sufficient firepower to
deliver the scheme as it was intended, to
offer a real choice to those SMEs seeking
funding.

Side-deals between banks and funding

platforms should not deter SMEs from the
use of designated platforms in favour of a
banks named platform, which would affect
the neutrality of the referral process.

We hope that the BBB will continue in its

current form so that progress to date is not
jeopardised. It must understand the pace of
the market and the particular needs of SMEs
and the different funding options available
to them.

Action: similarly, the Government should,

via a neutral arrangement, monitor and
publish referral data regularly to track
progress and ensure the regulations are
working effectively.

Action: the Government must ensure the

full and speedy implementation of access
to finance (designation) arrangements as
set out in the Small Business Enterprise
and Employment Act, and that there is no
dilution of the regulations.

 Marketing to raise awareness

2
of alternative finance
Action: The Department for Business,
Innovation and Skills, with the British
Business Bank, should run educational
and promotional campaigns to ensure
SMEs are made aware of the range of
different forms of alternative finance, from
bonds to donations, to equity and invoice
finance, and where to go to find out more.
Increasing awareness of the alternative
finance options available for SMEs doesnt
just need to be targeted at business owners
themselves. SMEs are likely to approach
banks first, followed by an accountant
or professional adviser to discuss
raising finance.
2014 figures show:

Only 27% of SMEs (excluding the
permanent non-borrowers) in 2014
were aware of crowdfunding2.

Surveying their members in March
2015, the British Chamber of
Commerce said: there remains
little understanding of alternative
finance options3
Out of habit and a lack of wider awareness,
many SMEs will approach their bank as the
first port of call in order to discuss finance

options. The reality is that banks are set up

to lend to companies with tangible assets
to secure loans against, whereas millions
of companies are now fundamentally
knowledge economy businesses, with IP
assets, meaning banks are often ill-suited to
best serve such businesses.
Failure to address issues of awareness and
understanding means the alternative finance
industry would fail to continue growing as it has,
and the UKs SMEs will not be able to access the
finance they need, when they need it.
Louise Beaumont, GLI Finance

Support for the running

3 of an education programme

Likewise, to ensure effective implementation

of the designation regulations, bank
relationship managers, and their
counterparts in accountancy firms, will
need detailed knowledge of the industry,
the forms of alternative finance available,
and those which might be suitable for their
clients.
Action: it is important that bank
relationship managers, and professional
financial advisers, can access neutral
guidance about the alternative finance
market upon which to base their own
advice to SMEs. This will ensure that those
SMEs seeking finance are presented with a
broad and appropriate range of options.
2
3

The expedited introduction

4
of the Peer-to-Peer ISA
Action: we call for the expedited
introduction of the Peer-to-Peer ISA which
is to undergo additional consultation
by HM Treasury. It is important that the
new ISA is created as a third, separate
class of ISA. This is a more appropriate
vehicle for delivering the Government and
FCAs objectives of protecting investors
particularly since P2P loan investments
are intended to fall outside of the Financial
Services Compensation Scheme (FSCS).
Similarly, we call for the inclusion of non-UK
platforms within the European Economic
Area (EEA) which abide by equivalent
regulatory standards. The ability of the UK to
remain as the global leader in the alternative
finance industry is surely dependent upon
its ability to compete internationally.
However, it will be important for the FCA and
HMRC to clarify the equivalent regulatory
standards so that UK and non-UK EEA
platforms can compete on a like-for-like
basis.

(BDRC: SME Finance Monitor, 2014: http://bdrc-continental.com/wp-content/uploads/2015/02/BDRCContinental_SME_Finance_Monitor_Q4_2014.pdf)

(BCC, in evidence to the Treasury Select Committee, published 13th March: http://www.publications.parliament.uk/pa/cm201415/cmselect/cmtreasy/204/20408.htm)

 Tax reliefs
5
and arrangements
FinTech is a knowledge intensive industry.
Action: we call for the next Government
to maintain the generosity of the Seed
Enterprise Investment Scheme (SEIS), and
Enterprise Investment Scheme (EIS).
These schemes, along with recent
amendments to withholding tax provisions,
should be monitored as standard to
encourage responsible lending.
Action: we seek the ability to create
corporate structures which would allow
tax efficient investment into SME loans
through a corporate vehicle (similar to
Business Development Companies in
the US).
Analogous with Real Estate Investment
Trusts (REITs) in the Real Estate sector, these
structures would bring more flexibility for
lending to SMEs in the UK than existing UK
investment trusts. The success of Business
Development Companies in the US suggests
that a new structure could provide a
significant amount of SME lending capacity.

REGULATIONS INCURRING
NO OR LOW PUBLIC COST
There are actions the Government and regulators are working
on. These must be implemented properly with clear accountable
oversight.
Action: we seek regulation of alternative finance providers
to bring them under a common regulatory environment,
including conduct of business obligations, as other areas
of financial services are. This will allow the regulator to have
recourse to the finance platforms and their Directors if their
business processes are found wanting.
Appropriate regulation of crowdfunding, peer-to-peer lending,
and other forms of alternative finance, such as invoice finance
and commercial finance broking, is required to enable the
protection of SMEs, investors, and the growth of the market.
Action: any new regulations must be fully implemented with
clear and accountable oversight. Some regulations will be
from the Financial Conduct Authority (FCA), others from HM
Treasury, however proper consultation with industry and
effective communication between regulatory bodies is vital.
Action: full consideration of the outcomes of the Competition
and Markets Authority review of retail banking.
Action: expansion of Project Innovate at the FCA to encourage
innovation in financial services and to ensure that regulations
keep pace with emerging trends.