Enhanced procedures to restrict the closure of business bank accounts and a new version of the Growth Voucher scheme are among the proposals being put forward by ICAEW in response to a Treasury Committee call for evidence on the thorny issue of SME finance.

The cross-party Committee of MPs will examine the key challenges SMEs face when seeking finance, the regulation of small business lending, and the role the Government can play in boosting lending to small businesses.

Commenting at the inquiry’s launch in July, Harriett Baldwin MP, Chair of the Treasury Committee, said: “Small businesses are the lifeblood of local communities, powering economic growth and fostering innovation and an entrepreneurial spirit.

“As a Committee, we’ll be examining whether small businesses are able to access the finance they need to grow and develop, whether there is adequate regulation of the sector, and if Government can take a more active role to support business growth.”

Feedback from ICAEW members in both business and practice suggests that the difficulties faced by SMEs have become more acute largely due to difficult economic conditions in the wake of the COVID-19 pandemic. ICAEW’s Q2 2023 Business Confidence Monitor (BCM) highlighted a sharp rise in the proportion of SMEs reporting that access to finance and bank charges as growing challenges.

David Petrie, ICAEW’s Head of Corporate Finance, says the cost of finance is a factor as businesses readjust to the rising cost of borrowing following an extended period of low interest rates and significant government support during and following the pandemic. However, the overriding issue for many businesses is availability, Petrie warns.

“All business relies on access to finance and banking and yet it seems from the feedback that we're getting that banks are being more selective about the businesses that they lend to and do business with, both by sector and by size.”

That sentiment is borne out by recent data from the British Business Bank, which found that challenger and specialist banks lent more money to small businesses in 2022 than since records began, exceeding lending by the UK’s biggest five banks.

The record year saw £35.5bn lent to SMEs by smaller banks last year – representing a 55% market share – as many companies grappled with high costs and weaker consumer spending. With business confidence flailing and the prospect of business failures looming, it’s a situation only set to get worse, Petrie warns.

“The last time that supplier funding from high street banks became more challenging was in the aftermath of the financial crisis from 2008 and continuing past 2010. We're seeing similar constraints on banks' appetite to lend, but for different reasons. But this time, there is a solution in place in the form of the government support to challenger banks delivered via the British Business Bank, so there should still be choice available to smaller businesses.”

However, Petrie said improvements to the process of opening new bank accounts are needed. “It’s quite possible that some banks are not in a hurry to change their processes as a way of selecting the type of business that they do” he observed. One ICAEW member cited in its representation on the call for evidence said: “You can register a company in 10 minutes, get your first client in a week but getting a bank account can take three months.”

ICAEW is also calling on the government to explore a new version of the Growth Voucher Scheme that closed to new application in March 2015. The scheme helped over 28,000 small businesses access strategic advice on areas including financing that could help them grow. Three-quarters of these businesses received a voucher that offered up to £2,000 to cover half the costs of buying strategic business advice from private sector suppliers including ICAEW member firms.

“Very often, the blockage to accessing finance is not the quality of the business, but the quality of the application for finance. And this is where ICAEW chartered accountants can play a particularly valuable role in help businesses prepare to be fit for finance,” Petrie said.

ICAEW’s representation also calls on the government to increase the threshold for Start-Up Loans provided via the British Business Bank, as well as simplify the guarantee support. The threshold of £25k has remained unchanged since the start of the scheme in 2012. Petrie is a great fan of the Start Up Loan Scheme and said “The concept of Start-Up Loans remains as valid today as it was when it launched more than a decade ago. However, it would surely be appropriate to increase the threshold in line with inflation.”

Meanwhile, more work is needed to standardise Open Banking data for SMEs, ICAEW urges, and it says the timescales for development of an open platform for SME finance that brings together a global identity standards and secure methods of sharing information should be accelerated.

• Read ICAEW’s Representation on the call for evidence on SME Finance.