5th June 2014

Queen’s Speech: Small Business Bill a huge boost for SME funding

• New legislation to address barriers to finance for SMEs

The announcement in the Queen’s Speech of new legislation to improve small businesses’ access to finance could provide a huge boost to SME funding, says the Asset Based Finance Association (ABFA), the body representing the asset based finance industry in the UK and the Republic of Ireland.

The Government says that the forthcoming Small Business, Enterprise and Employment Bill will "make it easier for small businesses to access finance, and improve payment practices between small businesses and their customers."

Last week*, the Government confirmed that it intends to introduce legislation to tackle barriers to SMEs use of invoice finance, such as bans on the ‘assignment’ of debts imposed by some big businesses on their smaller suppliers. These prevent the suppliers from using the invoices that they have issued to those customers as the security for invoice finance in order to improve cashflow.

The ABFA has long championed the removal of ‘bans on assignment’, as they can be a significant barrier to small businesses getting appropriate financing.

Jeff Longhurst, Chief Executive Officer of the ABFA added, "We hope that these proposed reforms move forward as quickly as possible. Removing the effective ban on the use of invoice finance that some big businesses impose on their smaller suppliers will free up more SMEs to access the finance that they need, and the asset based finance industry is ready to supply them."

"Invoice finance has already proved itself as a major source of financing, with a record £17.5 billion of it in use at any one time over the past year. This should provide a further boost." "We have long said that invoices are an asset owned by businesses, and there is no reason why they shouldn’t be allowed to use that asset to fund their growth."

"If these barriers are removed, it will free up thousands of businesses to raise the finance they need to fund growth and job creation."

"Restrictions on ‘assignments’ are unnecessary and are an articulation of the disparity of power in a commercial relationship. It is notable that they are usually found in standard form contracts drafted unilaterally by large customers."

"ABFA would also encourage the Government to promote better awareness and understanding of the various finance options available to SMEs, which includes factoring and invoice discounting. This would enable small businesses to gain greater access to the appropriate finance solutions for their needs. The ABFA wishes to play a pro-active role in helping Government to raise awareness of the finance options available to smaller businesses by working closely with the British Business Bank."

*Consultation on Building a Responsible Payment Culture

The full Government response to the Consultation on Building a Responsible Payment Culture is available here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/315462/bis-14-793-building-a-responsible-payment-culture-government-response.pdf