I remind hon. Members that they are expected to wear face coverings when not speaking in the debate. This is in line with current Government guidance and that of the House of Commons Commission. I also remind hon. Members that they are asked by the House to have a covid lateral flow test twice a week if coming on to the parliamentary estate. That can be done either at the testing centre in the House or at home. Please also give each other and members of staff space when seated and when entering and leaving the room, and make sure that mobile devices are turned off.
I beg to move,
That this House
has considered access to finance for small and medium sized enterprises.
It is a pleasure to serve under your chairmanship, Mr Pritchard. I am grateful that this timely debate was granted. Following the UK’s departure from the European Union and our ongoing economic recovery following covid-19, the UK has a unique opportunity to shape a diverse financial services sector that serves a fair, robust and competitive economy with small and medium-sized enterprises at its heart. Research by the Industrial Strategy Council, economists at Sheffield University and the International Monetary Fund concluded that the UK is the most regionally imbalanced country in Europe when it comes to the productivity of its economies.
It is worrying that the job opportunities and livelihoods of most UK citizens depend on where they live. We know that skills and talents are spread throughout the country but opportunity is not, and so it is with SME finance. The Prime Minister has rightly made levelling up his key mission, examples of which I am already beginning to see in my constituency, with the establishment of the Darlington Economic Campus providing life-changing new opportunities for the Tees valley. I and my Conservative colleagues look forward to the levelling up White Paper and the opportunity that it will provide to right some of the imbalance in our country that has perpetuated under Governments of all colours for decades.
How does regional inequality relate to small businesses up and down the country? As Mark Carney said when Governor of the Bank of England in his speech at the Lord Mayor’s banquet for bankers and merchants in 2019, SMEs across the country face a £22 billion funding gap. A recent inquiry by the all-party parliamentary group on fair business banking, chaired by my hon. Friend Kevin Hollinrake, my good friend, found that SMEs report significant problems in accessing finance.
I congratulate the hon. Gentleman on securing the debate. I recently met representatives of the British Business Bank, who ran through their full range of offerings, including optional learning modules for entrepreneurs, which are an excellent way to mitigate lending risk and provide entrepreneurs with the knowledge they need to be successful. Does he agree that that is an excellent initiative and should continue to be funded and expanded?
There is a lot to be learned in this area. My hon. Friend the Member for Thirsk and Malton and his APPG have been championing much of that learning, and I am sure the Minister has his listening ears on today.
The Department for Business, Energy and Industrial Strategy’s 2019 paper, “Equity Finance and the UK Regions”, confirmed that finance is too concentrated in London and the south-east, further increasing regional disparities, with London and the south-east of England receiving 67% of all equity deals and 75% of all invested funds in the UK between 2011 and 2017. The UK’s current financial system, which has historically been dominated by four large, shareholder-driven banks, is not fit for purpose in helping to address this issue. While a Back Bencher, my neighbouring MP, the Chancellor, my right hon. Friend
“limp competition is likely to result in less availability of credit, higher prices and poor service for SMEs.”
SMEs tend to take smaller loans, and by nature tend to be riskier borrowers. The profit-maximising big four banks will steer away from lending to this demographic, especially when they are able to lend to larger, more profitable and secure companies.
My hon. Friend makes a good point about smaller loans. Last year, the Government—BEIS and the Treasury—did a fantastic job in rolling out SME finance schemes during the crisis. When those schemes were launched, the banks were initially only interested in lending amounts above £25,000—sometimes above £50,000. We were told there was no demand for smaller loans. Bounce back loans then came along and have been a huge success—£50 billion of lending. It is important we get money right to the bottom—to the smallest SMEs that are so critical.
I know how much work my hon. Friend put in last year to ensure that bounce back loans were available to small businesses, and I pay tribute to him for that effort.
Moreover, big banks tend to require large amounts of financial data from businesses when assessing their eligibility for loans. For a new or small company, this data simply does not always exist, but should that prevent them from being eligible for finance? SMEs need to be assessed on their business model and their economic potential in local areas and their wider potential contribution to society, not just on existing balance sheets—qualitative rather than quantitative. Yet this process is too time consuming for banks, preventing SMEs from crossing the first hurdle.
Due to the concentration of finance within large, shareholder-driven banks, SMEs are often not even aware of alternative lending providers and think that rejection from a big bank is a life sentence with a lack of finance. The current bank referral scheme, originally designed to help businesses access finance once rejected by a bank, fails to provide adequate information on a diverse range of borrowing options and fails to help SMEs understand why they got rejected, what financial products are best suited to them, and how they can optimise their application to get the best chance of success.
This environment discourages SMEs from continuing their search for finance, despite competitive, socially responsible and trustworthy alternative lenders being out there and wanting to lend to SMEs. In fact, as found by the Federation of Small Businesses in 2018, 73% of SMEs in the UK would rather grow more slowly than borrow. The Centre for Policy Studies also found that the UK is ranked 13th among the 14 OECD countries in the proportion of start-up businesses that grow to 10 people or more in three years.
I recall the huge leap of faith and risk I had to undertake when I began to grow my business. Moving from five to six employees was a big hurdle to overcome, as were the leaps to 15 and to 20 employees. The smaller you are, the bigger the hurdles. Moving from one employee to two is a doubling of the payroll, which will inevitably put a strain on small and fledgling businesses’ cash flow. Because that is so difficult, many businesses do not grow to their full potential.
The critical lack of diversity in the business lending market is detrimental to the resilience of the UK economy. As we continue to debate how the future regulation of the financial services sector should look, we must consider parts of the world where they are already doing well. Take one often-cited example from the critical post-recession period of 2008 to 2013: total bank lending to non-financial business in the UK dropped by about 25%. However, during the same period in Germany, where regional mutual banks and co-operatives are commonplace, lending increased by around 20%.
This critical lack of funding for SMEs is also detrimental to growth of the UK economy. The Department for Business, Energy and Industrial Strategy and the Office for National Statistics estimate that SMEs represent 99% of businesses. Their abundance means they have the potential to increase UK productivity. They are areas that the UK has struggled with for many years. More specifically, many SMEs contribute greatly to their local communities through increasing local employment, contributing to local economic growth and improving livelihoods. As the recent report of the APPG on social integration, which I chair, recently reported, SMEs were at the forefront of community volunteering during the pandemic.
I know the Minister is a good man. Although the Westminster Hall debate he is responding to today does not have the fireworks of yesterday’s, I can assure him that the solutions are within our grasp. It does not need years of planning and strategising; the solutions are out there. They just need support and political will.
First, we must deliver a strong local finance option for businesses in the UK. We cannot continue to deprive hungry and ambitious businesses of access to finance and scaling up, simply because they do not have access to the right financial product. We need to provide capital to community development financial institutions and regional mutual banks, to allow them to increase their offering.
Community development financial institutions are private finance institutions that are dedicated to providing responsible, affordable lending to disadvantaged communities and individuals. They do not prioritise profit, but prioritise allowing local-income areas to flourish. By providing finance as well as financial support and knowledge, CDFIs look at the wider benefits that each SME can provide to its local area, financing businesses that can make the biggest impact, even if they have been rejected by the big four.
Regional mutual banks have a more regional structure, prioritising relationship banking and making use of soft information to assess SME customers for credit.
My hon. Friend makes a good point on regional mutual banks, and I congratulate him on bringing forward this important debate. It is also a pleasure to serve under your chairmanship. Mr Pritchard. Might my hon. Friend consider, in conjunction with his fellow MPs in the Tees Valley and the excellent Tees Valley Mayor, Ben Houchen, taking forward an initiative to set up a Tees Valley regional mutual bank?
That is an excellent idea, which I am sure my hon. Friend would be keen to help us spearhead. I am sure that Mr Houchen and the Tees Valley Combined Authority would relish the opportunity to bring more investment to the Tees Valley.
These finance providers tend not to have capital stock but are owned by their members, who have a say over the governance of the fund. Both regional mutual banks and CDFIs bring a refreshing approach to finance, prioritising local growth over profits—an approach that is much needed in today’s market. I know, too, from my own experience in business over 15 years before entering this place, that those relationships, with a dedicated relationship manager, are crucial.
Put simply, we need local solutions to local problems. Tees Valley Mayor Ben Houchen is leading the way in the north-east, having recently launched a new back to business fund worth £250,000, granting small and medium-sized businesses in the hospitality, tourism and events industry the help they need in their journey to recover from the pandemic. That is local leadership with local solutions.
Secondly, we need to turbocharge the challenger bank and non-bank lending sector. Such companies have provided a welcome challenge to the big four banks in recent years, yet they are currently hamstrung by disproportionate regulation. Reforming the minimum requirement for own funds and eligible liabilities—MREL rules—and providing access to the term funding scheme for non-bank lenders, will create a more level playing field for challenger banks in competing against the big four.
Thirdly, we need to continue Government initiatives to unlock patient capital from pension funds, by using social usefulness criteria, an idea currently used in France. We can unlock that money for investment in long-term, socially important companies.
Fourthly—last but certainly not least—we must ease the finance application process to encourage borrowing for growth. We need to ensure that business support services, such as local enterprise partnerships, the bank referral scheme and the British Business Bank—I am grateful to Margaret Ferrier for mentioning it—are properly funded.
Small businesses are the backbone of this country— 99% of businesses in the UK are classed as small. They play an essential role in strengthening our local economies, creating job opportunities and introducing innovation to their local communities. They are the businesses that support our local charities and volunteer groups. They are the people who sponsor the local football, cricket or rugby club, and they are the lifeblood of our towns across the land.
As we bounce back and build back better, we must take advantage of this opportune moment to reshape the financial services sector in a way that puts those hard-working businesses at its heart. Improving access to finance will provide SMEs with ample opportunity to scale up businesses and communities and improve employment chances across the country. In short, we need a financial services sector fit for everywhere, from Devon to Darlington—fit for the whole United Kingdom, not just the City of London.
It is a pleasure to speak under your chairmanship, Mr Pritchard. I again congratulate my hon. Friend Peter Gibson on bringing forward this important debate. It is very important, particularly in these times, to refer the House to my entry in the Register of Members’ Financial Interests. Although I am no longer directly involved in my business, I led and built a business for the best part of 30 years. Access to finance is the critical factor in wanting to grow and scale a business.
As my hon. Friend set out, SMEs are so important in the UK in terms of the dynamism of our economy. Some 60% of the private sector workforce and 50% of our private sector turnover comes from SMEs. We are facing some huge challenges that are relevant to our economy, not least the demographics of costs in the future. We recently had a debate in Parliament about how we pay for the covid crisis and pay for social care, but we have some even bigger challenges in terms of balancing the books. The Office for Budget Responsibility has said that because of healthcare costs, social care costs and pension costs, our debt to GDP ratio, which is currently about 100% or £2.2 trillion, will be 400% by 2060 if we do not change our tax system or change the dynamics of our economy to pay for such costs over the next few decades.
The only way of paying for that is to make the economy more productive and more dynamic. I know, from my experience in running a business, that one thing that made our business more productive and more dynamic was competition. New competitors appearing on the horizon made us more efficient and more productive. We need a much more dynamic business environment. That is why my hon. Friend’s comments are so relevant, particularly on the statistic he cited from the APPG’s report, “Scale up to level up”, which I know the Minister has seen. Some of its conclusions are so important, but so are some of the facts behind it.
As my hon. Friend said, 73% of SMEs would rather grow more slowly than borrow. That means that we have a real problem, because we need those businesses to scale up. Not every business wants to do that, of course. Some businesses are happy to stay at a lifestyle kind of level. But part of the problem we have, as was very well articulated by the Chancellor when he was a Back Bencher, is that we are No. 1 in the OECD report in terms of start-ups, but No. 13 or No. 14 in terms of scale-ups—the number of small businesses that employ 10 people or more after three years. That is a real problem.
It is our belief, which is certainly borne out by anecdotal conversations with businesses, that because of the fall-out of some banking scandals—which came as result, principally, of banks trying to restore their balance sheets after the difficult recessionary problems of the global financial crisis—withdrawal of finance to business in the five-year period post 2008 has, as my hon. Friend the Member for Darlington set out, damaged confidence between business and banks. We need businesspeople to feel that they can scale up and grow, which means taking finance, taking risks, and, in most cases, putting their house on the line. I think my hon. Friend and I have both put our houses on the line in the form of personal guarantees and others. These are big risks that businesses have to take. If we expect them to do that without the confidence that banks will see them through a crisis, then many fewer businesses are going to take that risk.
This is where Germany has won and got it right: regional mutual banks. In fact, it is not just Germany. Every G7 country has a significant regional mutual banks sector as part of their lending mix, and the UK is an outlier in that sense, having just commercial banks. That is important because, particularly post the financial crisis, we saw banks prioritising their own finances, shareholders and balance sheets over the SMEs, which led to tens of thousands of businesses going to the wall.
That withdrawal of finance between 2008 and 2013 saw a 25% reduction of lending to SMEs from our commercial banks in the UK. At the same time, the Sparkassen and Landesbanken in Germany, the community and co-operative banks, increased lending by 20%. That is an incredibly important statistic, because that is when the SMEs needed the finance. There is an old adage we quote in our report—I heard it from my father when I was a young boy—which is that the banks will give you an umbrella when the sun is shining and take it away when it is raining. That proved to be the case in the worst financial crisis—the five-year crisis—we have had in this country and that, again, damages confidence.
That is not to say that our commercial banks are not part of the solution. Clearly, they are, and I must say that they did a fantastic job in 2020 in terms of getting finance out of the door to our SMEs—about £80 billion in coronavirus business interruption loans and bounce back loans. However, I wonder—although I probably do not have to—how much of that money would have been lent had the Government not stepped in to give them guarantees. How much of that money would have been lent if the Government had not taken away the responsibility for a forward-looking viability test? A fraction, I suspect.
Shareholder-driven banks will tend to look after the shareholders in these crises, whereas mutual banks and community development finance institutions, which are effectively not-for-profit co-operatives, really look after businesses. Clearly, some businesses will go to the wall if they are not fit for purpose in the current or future climate; we do not want to see zombie businesses. Nevertheless, we want businesses that hit problems because of a short-term recession to be helped through that period and into the better times ahead.
From my experience in the property sector, we had a good business going into 2008, when we had 210 staff members. However, we were not treated as a good business with longevity by our bank when we went into that crisis, and we had to make huge cuts. We cut our staff from 210 to 65 in a very short period. That was short term—we eventually picked those jobs back up—but we could have been helped through that crisis much more effectively. If the banks had not had shareholders as their priority, and if they had had customers as a priority, then I think we would have seen something different.
Does the hon. Member agree that high street banks could benefit from investing more time in understanding the SMEs they lend to, really taking the time to understand the business model and the entrepreneur throughout the whole lending process?
That is such an important point, and I appreciate the hon. Lady’s intervention. Again, going back to my days as a child going with my father to see the bank manager, Mr Ron Taylor of Barclays bank, my father had that one-to-one relationship with him. He knew a good business from a less good business; he knew which ones he would support in difficult times. That type of relationship between big banks and SMEs has largely gone now, and the lending decisions have moved away from those relationship managers.
That is a worry and a concern, and it is what CDFIs and regional mutual banks can bring back. In this report, there is clear evidence from the sector, academics and people in the German banking sector that big banks primarily lend to big businesses—not exclusively, but primarily—and that big banks did not want to lend to SMEs, did not want to lend below £50,000, even though they were effectively Government-backed loans, until the bounce back loan scheme was brought forward and businesses could get a loan on demand. That is because that relationship with SMEs has principally gone now.
That relationship is something we need to restore. The CDFIs and regional mutual banks are those smaller banks, and it was great to hear that my hon. Friend the Member for Darlington would consider a Tees Valley version of that. I am very keen to work with the Mayors and the council leaders across Yorkshire. They are in talks now, trying to set up a Yorkshire regional mutual bank. That would be a fantastic step forward. It would not require any money from the Treasury or the Department for Business, Energy and Industrial Strategy, from Government, other than a guarantee or loan, because the money comes back. The money is lent to businesses sensibly. It will then be returned to the Treasury, and with interest, on the basis that that will create tax receipts, which are good for the Exchequer. It would be a very sensible move to pump-prime a number of regional mutual banks, which would have that patient capital approach in the down cycles.
Of course, as my hon. Friend the Member for Darlington set out, what the Treasury and BEIS did in pumping out the money last year was tremendous, and my hon. Friend the Minister did a great job of engaging with businesses. One mistake we made, though, was that we made bounce back loans so cheap—which was a great thing to do to get that finance out to SMEs—that it was not possible to borrow from wholesale markets to lend at 2.5%. It meant that only the big banks had access to very cheap capital through the term funding scheme for SMEs. It meant that, whereas we had seen about 59% of SME finance in recent years coming from the challenger banks and non-bank lenders, suddenly that was down to 11% as the big banks took a great big market share. For people such as iwoca, Tide and others, their market share dropped dramatically and they lost, potentially, thousands of customers during that period.
We will have to do this again at some point, so we might as well be ready for it. I have asked Andrew Bailey about this. It was not all in the Treasury’s gift to sort the term funding scheme for SMEs; it is a Bank of England scheme. Nevertheless, we can square that circle in a couple of ways. Either we find a way for the term funding scheme to work for non-bank lenders, or we put requirements on the banks so that if they access that scheme, they also have to lend a proportion of those moneys to non-bank lenders and the like. It is very important that we get this right now. We must not simply forget some of the things that we learnt last year but actually put those things in place today to ensure that we are prepared for the future.
I say that because there is another challenge ahead, and this is the second requirement that I am going to refer to—there are only three, Mr Pritchard. This is another APPG initiative—Bankers for NetZero. It is a world-leading initiative; we are now one of the key chapters in international financial regulation in terms of how we decarbonise our economy and how we bring the UK finance industry together with business and provide the capital to decarbonise—that will be a critical part of the conversation. We are going to have to do something at some point to provide capital to businesses so that they can decarbonise, because significant investment will be required in lots of businesses to be able to do that. We do not want to simply pull the plug in terms of SMEs that could contribute towards decarbonisation. We should not be thinking, “Oh, they’re businesses that operate in old ways, using what is probably less green technology, and therefore we’re not interested in them. We’re going to pull finance from those people and go to new businesses.” That would be a significant mistake: the scale would probably be a multiple of two or three times what it was during the financial crisis when we pulled money from certain businesses. We should be allowing these businesses to invest in decarbonisation.
To give a simple example, there is a very good business in my constituency—I have used this analogy many times for people who listen to my repetitive speeches—called the York Handmade Brick Company. It makes handmade bricks, as can be imagined, and employs about 20 people in my constituency. It is a very good business. I am not saying that it has any kind of liquidity or capital issues; I am sure that it has not, because it is a very successful business. But that business fires all its bricks in its kilns using natural gas. Nobody has yet invented a different solution to that problem, although no doubt there will be solutions on the horizon—biogas and the like. But whatever it has to do to make the business less carbon intensive will cost money—cost investment. Then it will have to find some capital to invest in new technologies. What we do not want to see, of course, is a bank coming along and saying, “Actually, our own business and our customer base have capital requirements that require us to not lend to businesses with a large carbon footprint,” and simply withdrawing finance from those kinds of business. It is a significant problem—a significant danger.
We will have to ensure that capital is made available, probably at a cheaper rate, a discounted rate, to decarbonise such businesses. For example, a term funding scheme for net zero, which the report on mainstreaming net zero proposes, is something that we should consider. We must get that right to ensure that all lenders can access those things. The Conservative Environment Network, of which I am proud to be a member, is also looking at this, and we had a conversation earlier today. It is very clear that we need finance for environmental reasons as well as for economic reasons. I could not put it better myself. The Conservative Environment Network is also very worried about divestment.
The last report to which I will refer is “Resolving insolvency”, because the Minister has responsibility for this area as well. It is a very important report. Today’s debate is not just about businesses that are growing but about businesses that might hit difficulty. The Department for Business, Energy and Industrial Strategy has made some very important changes to insolvency over the last year or so, giving businesses that are under pressure and having difficulties time to restructure. That is absolutely right.
However, what we have not addressed yet, although the Government have legislated to address it, is reform of the insolvency industry. The report highlights some very concerning conflicts of interest between insolvency practitioners and, for example, banks and private equity. There was a very disturbing recent case in which KPMG was fined £13 million in relation to Silentnight. That certainly highlights the kinds of conflicts that occur between secured lenders and insolvency practitioners.
The report recommended that the Government set up a totally independent regulator, as they have set out to do in the past. Currently, insolvency is regulated by recognised professional bodies—membership organisations. It is the only significant part of our economy that is not properly and independently regulated. We urge the Government to introduce changes to put in place an independent regulator, an ombudsman, a statutory code of ethics and a central database of repossessions.
My final comments relate to another change that the APPG on fair business banking has worked very hard to bring about. Following the global financial crisis, the APPG advocated an increase in the coverage of alternative dispute resolution. The Financial Ombudsman Service now has jurisdiction over businesses with a turnover of up to £6.5 million, up from £1.8 million previously, which is good. However, there is a scheme that looks at historic complaints and covers businesses with turnovers of up to £10 million. The Business Banking Resolution Service is a voluntary scheme involving seven banks, but at the moment it is an embarrassment to the banks that established it. It hears very few cases. Of the 626 cases that have currently applied to the scheme, only 90 are likely to be deemed eligible. Some of the cases fall into what is called the concessionary cases area, and of the 10 cases that the BBRS is recommending that the banks accept into the scheme, only one has been accepted, which is absolutely wrong.
The BBRS needs more independence and greater jurisdiction. I saw comments in The Times today about this particular issue to the effect that the APPG on fair business banking and the SME Alliance unanimously approved the eligibility rules for that scheme. That is absolutely not what we said. We said that we will have a watching brief over the scheme. It is not working. It needs urgent reform. I have talked to the Minister about this before, and I am sure that he will take those comments on board.
It is a pleasure to serve under your chairmanship, Mr Pritchard. I congratulate Peter Gibson on securing this very important debate. He gave us a very full and interesting speech, full of issues that I recognise. In terms of regional inequality, he has it spot on. When looking at regulation in different types of banks and those in Germany and France, and where small and medium-sized enterprises can receive their finance, he gave us a thoroughly good and interesting lesson.
The chair of the APPG on fair business banking, Kevin Hollinrake, followed—I apologise to him for my not perfect attendance at that important APPG—and gave us a quick run through a number of reports produced by the APPG, all of which were interesting and relevant to the subject we are talking about. During this time of COP26, I especially take on board his words about decarbonisation and small businesses looking forward environmentally. That could well become really important and another block to gaining finance in the future.
After the financial crisis, many SMEs were left to sink or swim when bank lending dried up, despite MPs from all parties calling for access to finance. That mistake must not be repeated. It was only right that firms were given furlough, coronavirus business interruption loans and bounce back business loans to get them through the coronavirus crisis. Since March, those have been replaced by the recovery loan scheme, administered by the British Business Bank. Loans are available through a network of accredited commercial lenders; I will come back to that point later. Term loans, overdrafts, invoice finance and asset finance are now available.
The Scottish National party welcomed the autumn Budget 2021 announcement that the scheme would be extended until June 2022, because it was originally due to close at the end of 2021. However, from
Moving from the previous loan system could be difficult for small to medium-sized enterprises. The flexibility of the bounce back loans for small firms, as well as automatic approval and repaying only when the firm is growing, is no more. This is huge. It is beyond belief, and will mean that schemes will be axed before firms have been lent the amount promised.
As well as access to new finance, the SNP has concerns about firms being able to cope with debt levels accumulated during the coronavirus pandemic, and the economic future is looking even more uncertain. After the last crisis, many SMEs were left bankrupt when they could not repay their debts, despite MPs from all parties calling for access to finance. That is another thing that must not happen again.
However, the risk is rising. Last month, the Financial Times reported that the Bank of England has warned that a
“third of the UK’s small businesses are classed as highly indebted, more than double since before the Covid-19 pandemic”.
It went on to say that the Bank of England said
“two-thirds of the £79bn increase in UK corporate debt between the end of 2019 and the first quarter of 2021” was held by firms who would not have been able to borrow pre-pandemic. The report continued:
“The research showed 33 per cent of SMEs held debt levels of more than 10 times their cash balances, versus 14 per cent before Covid-19 hit. The percentage of those with high debt relative to both cash balances and monthly inflows trebled to 10 per cent from 3 per cent over the same period.”
“Although debt appears affordable in the near term, insolvencies are likely to rise from 2021 Q4 as government support is withdrawn as planned.”
There is a clear blueprint that the UK Government can adopt from TheCityUK, which the SNP has supported since its publication. TheCityUK’s report, “Supporting UK Economic Recovery: Recapitalising Businesses Post Covid-19”, warned that, by March 2021, £100 billion of unsustainable debt was owed by UK businesses, with £35 billion from Government loan schemes. Much of that came through coronavirus business interruption loans and bounce back loans, which were taken to support firms and the economy through the pandemic. Under current rules, responsibility for chasing up businesses that are struggling to pay back their coronavirus loans falls on banks and other lenders, which will only force a rerun of the post-financial-crisis saga of SMEs being bankrupted by banks collecting debts. That the Government will be forcing them to do so is beyond belief, as the hon. Member for Thirsk and Malton said.
TheCityUK came up with a business repayment plan that would let very small businesses pay back their coronavirus loans via a long-term, student loan-style system, with small repayments made every month via the tax system; and a business recovery capital option allowing larger small businesses to convert their coronavirus loan into a long-term, unsecured loan, again to be gradually paid back. TheCityUK plans would also enable some larger businesses to convert their loans into shares in their company on which they paid regular dividends, but that is unlikely to apply to many SMEs. All that would be overseen by a proposed UK recovery corporation, which in conjunction with the UK Government would administer these repayment schemes. Repayments will be a huge drain on SMEs and the economy for a long while to come. Mike Cherry, national chairman of the Federation of Small Businesses, recently suggested that small businesses should repay their coronavirus loans only once they are turning a profit:
“A guarantee that they won’t have to start making repayments until they’re turning a profit would give them the confidence to invest and hire today, rather than further down the line when such activity may prove too little too late.”
Rising overheads are a key factor behind a slump in Scottish business confidence, according to new research from the FSB in Scotland. Some 77% of Scottish businesses say that the cost of running their business has increased since this time last year, compared with only one in 20 —some 5%—that are seeing a decrease. The FSB’s Scottish small business confidence index fell steeply to +1.2 points in the third quarter of this year, from +20.5 points in the second quarter. The UK’s index also fell, although not quite so steeply, meaning that the typical Scottish business is now less optimistic than the UK average, a reversal of the situation in the summer.
The FSB warns that rising overheads are making it difficult for businesses to invest in measures to grow their operations or tackle their environmental impact, which will hold back efforts to recover from the covid crisis in a sustainable way. Andrew McRae, FSB’s Scotland policy chair, says:
“Scottish business optimism bounced back over the summer but has slumped in the autumn. That’s partly because the easing of Covid restrictions delivered a big confidence boost that’s waned over time. However, punishing rises in business overheads are also taking their toll on the trading outlook. And with a rise in payroll taxes on the way, there’s no end in sight. Spiralling overheads are one of the biggest headaches for our members. Smaller businesses neither have the statutory protections of consumers, nor the bargaining power of the biggest firms. That’s why FSB has been campaigning for the UK Government to take action to help these operators, at the very least easing the VAT burden on their gas and electricity bills.”
One business hit by those rising costs is Equi, which has a number of shops. They are concerned that a high increase in their overheads may cause them to cut corners and cut staff, as happened in the past, which will mean that they are not as successful as they have been in recent years.
A separate FSB report calls on our policy makers to launch a new voucher initiative called “Help to Green” to help small businesses to reduce their environmental impact. The scheme would give businesses grants of up to £5,000 to become more energy-efficient. Andrew McRae said:
“In the short term, we need to help firms manage the overnight spike they’ve seen in their bills. Next, we need to support local and independent firms to reduce the amount of energy they use.”
All that has happened during COP.
Smaller businesses know that they have to take action, but only a third have a plan in place to reduce emissions. Governments in Edinburgh and London need to put together a package of help and support to help firms move in the right direction. SNP Members would prefer indebted firms that are held back from growth by interest payments to have their debt converted to equity or grants.
The UK Government should not force banks to take coronavirus business interruption loan scheme and bounce back loan debtors to the cleaners, as that will prevent them from rebuilding their businesses and, therefore, the economy. The Tory Government’s plan for business-as-usual debt collection is totally inappropriate following what we hope was a once-in-a-century economic shock.
The Chancellor said that total departmental spending will increase by £150 billion over the Parliament, which means a real-terms rise in spending across the board, with Scotland’s Barnett funding up on average £4.6 billion annually. All funding is welcome, but we need to be cautious. The Scottish Government are getting less funding for day-to-day spending in every year of the spending review period than this year. Most of the increases are likely to be in capital.
The hon. Lady is making some good points, but I am nervous about turning a loan into a grant or making it non-repayable, as I think she outlined that TheCityUK suggested. Lots of businesses did not take loans and used their own funds to keep going, and lots took loans and paid them back. Would there not be a moral hazard in effectively saying that some businesses could have free Government money when others did not take it?
I take the hon. Member’s point, but I think my point was worth making. We have to be so careful, because businesses took those loans on and are now likely to be hounded by banks that are mainly interested in providing money to their shareholders. The hon. Members for Darlington and for Thirsk and Malton spoke about the mutualisation of banks and local regional banks, which are also on the SNP wish list. I take the point, but my main point is that businesses should not be forced out of business because they borrowed money at a time when they were able, and perhaps would not have been able in the past.
“The budgets are set;
the plans are in place;
the task is clear. Now we must deliver because this is not the Government’s money— it is taxpayer’s money.”—[Official Report,
That makes it clear that we must be wary of warm words. The Scottish Government will have to consider the detail of the Budget when it has been confirmed. The £150 million small business fund for Scotland should be disbursed by the Scottish Government and Scottish Enterprise, not the UK Government or the British Business Bank exclusively.
Although the coronavirus business interruption loan scheme and bounce back loans were offered, not all our constituents could access them due to their business banking accounts not being with one of the big banks on the list. They tried to access them through feeder accounts from other banks such as HSBC, but continue to be denied access to any financial support. They were mostly SMEs, many of which were forced to close.
Will there be any guarantee that those who were unable to access those loans but managed to survive with grants from, for example, the Scottish Government will be able to access the recovery loan scheme? Will the scheme allow those forced to close to rebuild their business? I hope the Minister can give assurances on those matters and take on board TheCityUK’s plan and the warnings from the Bank of England, FSB Scotland and nationally.
As we have heard, small and medium-sized enterprises are at the heart of the economy. They employ millions of people and are responsible for much of the innovation and creativity that makes this country such a special place and such a dynamic economy. They have, of course, been through a tough time over the past 18 months or so. Many small businesses could not trade at all for much of the period, and others only in very restricted circumstances. In that context, programmes such as the bounce back loan scheme and the coronavirus business interruption loan scheme were important and welcome. As we now unwind from that level of Government support, it is important that the repayment mechanisms and the schedule are realistic. The SNP spokesperson referred to the burden of debt that has been left. It is also important that we have a proper assessment of the level of fraud and the use of public money in those schemes. A lot of money went out of the door and it is important that the taxpayer gets good value for money in support schemes of that nature.
As we recover from the pandemic, many SMEs are facing labour shortages, rising crises in materials and other effects, and our capacity to recover economically from the covid pandemic will depend to a large degree on how SMEs meet those challenges and manage to fare over the coming years. There are, as we have heard, particular traditions when it comes to access to finance for SMEs here in the UK. They include a dependence on loans from a relatively small number of traditional high street banks, a major focus from banks on mortgage and other property lending, a relatively new group of challenger banking entrants and less-developed non-bank sources of finance that are not always easily available to SMEs. The hon. Member for Darlington mentioned community development financial institutions in that regard and I believe they have an important role to play. I am familiar with the role of the Black Country Reinvestment Society, which operates in the area I represent. It has been able to step in at times and offer loans when the main high street banks have turned people down, and I believe it has helped around 1,500 businesses in the west midlands region over the years. I am sure it is a similar story in other parts of the country with other CDFIs.
The debate has also seen some discussion about the challenger banks and their potential to do more. The Minister heard the points made by the hon. Member for Darlington about MREL funding. That is important, because there is an active debate between the banking sector and the Bank of England about how that operates. The concept of bail-in debt was introduced after the financial crisis to avoid the situation where the taxpayer has to step in if a bank goes belly up—or, as it was termed, privatising the gains and nationalising the losses. With bail-in debt the bondholders are supposed to be on the hook, not the taxpayers. That is the right thing from the public interest point of view, but inevitably it entails a cost that will be applied to those who are lending to banks under those circumstances.
In this country, once a bank’s balance sheet increases above the range of £15 billion to £25 billion, the MREL bail-in rules kick in, although the Bank of England has indicated recently that the staircase for compliance will be shallower and over a longer period than was previously the case. The thresholds elsewhere are much higher. In the European Union, the threshold is €100 billion. In the United States, it is $250 billion. That means that bail-in in those jurisdictions is aimed at much bigger banks. There is another factor, which is related to the different ways that deposit insurance works in those jurisdictions, which has an impact on the risk appetite of regulators, but those are still much higher thresholds than in the UK and they allow medium-sized banks to grow before having to adapt to this new regime.
The challenger banks argue that if the threshold for requiring bail-in debt was higher, that would release more capital, which could be lent to the SMEs that are the subject of today’s debate. When the Minister winds up, I would be really interested in his reflections on the debate about challenger banks and the minimum requirement for own funds and eligible liabilities.
For the purposes of clarity, I should say that this is not a Brexit issue. The differential balance sheet limits for MREL predate Brexit, but challenger banks have all made the point that it places a ceiling on their capacity to grow.
The changes that the Bank of England has made on MREL are very modest and will not help a bank such as OakNorth, which is a very successful challenger bank, in terms of its ability to lend more, which it could do if the limits were changed. Does the right hon. Gentleman agree that it seems perverse that bail-in requirements are there to try to protect the taxpayer and to take away the systemic risk, but the biggest systemic risk is having all the banking concentrated in a few big banks?
There is a potential tension here between competition and safety. The rules were brought in to insulate the taxpayer, but, at the same time, the Bank of England, the Treasury and the Government—everybody—subscribe to the idea of more competition in the UK banking sector, so I believe this discussion will continue.
More broadly, the issue of access to finance is also related to the question of economic growth. Economic growth has been sluggish in the UK for the past decade, averaging just 1.8%, which is significantly lower than pre-financial crisis rates of growth. Once we strip out the covid effects of huge plunging growth last year and a sharp bounce back this year and next, the recent report from the Office for Budget Responsibility, published at the same time as the Budget, predicts a return to those sluggish growth rates, averaging just 1.5% between 2024 and 2026.
Let us be clear: taxes are increasing because economic growth has been low. It has been low for more than a decade, and the Government cannot continue to blame that on the past. This low growth has left the country less wealthy than it would have been, and it has made it harder to fund public services adequately without upward pressure on taxes. Low growth is the foundation for the series of tax rises that the Chancellor has announced over the past year. That is a much bigger factor than the pandemic; the OBR report makes that clear. In fact, in that report it downgraded the long-term impact of the pandemic on GDP from 3% to 2%. Its estimate of the long-term impact of the Prime Minister’s Brexit deal was a hit to GDP twice as high as that from the pandemic.
We are talking about the financial services industry today. It was hung out to dry in the Prime Minister’s Brexit deal. It is not that the Government fought for market access and lost—the Government did not even try. This is 10% of the UK economy, hundreds of thousands of jobs around the country. It was simply left by the wayside when the Government negotiated the Brexit deal.
It is in everyone’s interests to address the issue of the UK’s sluggish economic growth. If the economy grows more, tax revenues will increase without tax rates having to rise. The country will become more prosperous and we will be able to pay our way. That is another reason why a healthy and properly financed SME sector is so important. Businesses need access to finance to be able to invest in expansion, to make the new idea happen, to be able to buy the new piece of equipment that might be able to do the job in a greener or more efficient way, to move into new premises, and to increase capacity to meet new orders. That is the foundation of economic growth, and right now we do not have enough economic growth. That of course is not the only thing that will impact growth.
If we talk to many businesses, they will tell us about business rates. In advance of the Budget, we called for an increase in the threshold for small business rate relief from £15,000 to £25,000. That could have lifted many small businesses out of paying business rates altogether, but that did not happen. Nor did the more fundamental reform needed to ensure that business property tax fits the economy of today and tomorrow, rather than the economy of yesterday. There will be other factors, too—not least our education system and whether we are equipping the workforce of tomorrow for the labour market of the future. Every time talent or potential goes unfulfilled, it is a drag anchor on economic growth, and that denial of opportunity is not just socially unjust, but economically destructive. We need to examine everything that can contribute to economic growth, and that means an SME sector firing on all cylinders.
This debate calling for more access to finance for SMEs is timely, but access to finance is not an end in itself. It is a contribution to the economic growth that the UK needs if it is to escape the high-tax, low-growth trap in which it finds itself, and for which households and businesses will have to pay the price in the tax rises recently announced, which will kick in over the next few years.
It is always a pleasure to serve under your chairmanship, Mr Pritchard. I congratulate my hon. Friend Peter Gibson on securing today’s debate and on how he framed it. I pay tribute to him for his work as chair of the APPG on personal banking and fairer financial services. It is important that we continue to shine a spotlight on that. He has been a staunch advocate for smaller businesses both in his constituency and around the country, and he brings his own experience to bear on that. We also heard from my hon. Friend Kevin Hollinrake, who is a vice chair of the APPG and has brought so much fresh, new thinking to these areas, which is important for me, for the Economic Secretary to the Treasury and for the Government as a whole. We continue to respect and listen to the views of both my hon. Friends.
The business experience of my hon. Friend the Member for Thirsk and Malton has been instrumental in the framing of his words. Both my hon. Friends illustrated how deeply they care about small businesses and their contribution to the economy, which, as we have heard, provides millions of jobs. SMEs will be the backbone of the drive for growth, innovation and jobs, and we are absolutely determined to support them. That is why during the pandemic we protected small firms with our income support schemes, grants, and nearly £80 billion-worth of Government-backed finance to more than 1.6 million businesses. However, as we start our economic recovery, we need to shift our focus from emergency support to policies that will help businesses create jobs and invest. As the Chancellor has said, our plan is to make the UK the best place to start, grow and scale a business. The logic is simple. More start-ups and scale-ups will in turn help us in our mission to level up the country.
We need to ensure access to affordable finance UK-wide, so can the Minister tell us what steps the Government are taking to make sure that Scottish SMEs have the right level of accessibility?
I thank the hon. Lady for that intervention. I mentioned levelling up the country, and she is absolutely right that we need affordable, diverse finances for SMEs right across the country, and that includes in Scotland. I want to make sure that we go further to make the UK the best place to start growth. It should not matter where we are in the country. It should still be the best place to start to grow and scale a business. That is as equally true of Scotland as it is of Wales, England or Northern Ireland. Brilliant businesses can be found everywhere in the UK. However, access to finance is undoubtedly skewed towards London and the south-east, and we need to rectify that.
At the Budget, we took some major steps towards redressing those regional imbalances. For example, the British Business Bank’s start-up loans have been helping entrepreneurs since 2012 with viable ideas that might otherwise struggle to obtain finance from more traditional sources. In fact, the bank has made 165 loans to businesses in Darlington, totalling more than £1.5 million. At the spending review, we built on that success, pledging another 33,000 loans over the next three years. That is not all for Darlington—it would be a significant number of start-ups there—but across the country. That is money that will get other great ideas off the ground.
Members have spoken of the need for strong local options for business; we absolutely agree. That is why the Budget committed a further £150 million to the bank’s successful Regional Angels programme, which helps entrepreneurs obtain early-stage finance across the UK. We also announced more than £1.6 billion for the British Business Bank’s regional funds, which provide debt and equity finance for SMEs to help them with their next stage of growth. Across those funds and start-up loans, CDFIs will continue to play an essential role to help get finance to underserved SMEs.
To answer the points hon. Members raised on CDFIs and mutual banks, community development financial institutions play a massive role in the landscape of alternative lenders, including those essential lenders providing credit to SMEs. They are such an important delivery partner for the start-up loans programme; 11 of the 21 start-up loans delivery partners are CDFIs. They account for approximately 30% of the loans issued through the scheme in 2021. More widely, the British Business Bank was working with 21 CDFI delivery partners, across a range of programmes, at July 2021. That includes the regional funds and the recovery loan schemes.
In addition, 14 CDFIs were accredited lenders for the covid loan schemes. In the wake of the spending review, we will continue to explore opportunities for collaboration between the BBB and CDFIs. The Government are also supportive of efforts to establish the regional mutual banks that we have heard so much about this afternoon across the UK. I understand that some prospective mutual banks have had success in raising capital from various sources, but they have also encountered some challenges. There are no plans directly to capitalise regional mutual banks, but I know the Government have been engaging with prospective mutual banks and are willing to explore solutions that are practical and proportionate.
My hon. Friend the Member for Darlington is not only not far from the Treasury in this place and constituency neighbour to the Chancellor, but the Treasury is moving a number of its operations to Darlington, his home town, which he represents. He will not have too far to go to knock on the door to further his case for regional mutual banks. I am sure he will be delighted to know that businesses will continue to obtain funding through all those schemes, along with those in the north-east and the wider south-west of England for the first time as we get regional funding for the British Business Bank increased.
The new regional funds the British Business Bank is setting up in Scotland and Wales, while building on its existing activity in Northern Ireland, will bring levelling-up opportunities for businesses across the UK. As Margaret Ferrier said in relation to Scotland, it is important that we support businesses wherever they are. The regional funds will support a wide range of businesses, including the innovative, high-growth firms that play such a big part in creating prosperity and opportunity. We are further turbocharging those firms through the £375 million Future Fund: Breakthrough, which sees the Government co-invest with private investors and businesses that are heavily focused on R&D.
Finally, as we have heard, the Chancellor announced the extension of the recovery loan scheme to
We also heard from Members about patient capital, and we are looking to improve access to longer-term sources of finance. We absolutely agree with my hon. Friend the Member for Darlington that we need to unleash the hundreds of billions of pounds in pension funds and other institutional investors for long-term investment. That is not just good for the wider economy, because it will support growth, but good for the customers who will benefit from the opportunities for returns offered by UK long-term assets. It is an area where we know we can and should make more progress. I am happy to say that this Government are taking significant steps in that direction.
We are implementing a plan to unlock more than £20 billion to finance growth in innovative SMEs. As part of this, British Patient Capital, a subsidiary of the British Business Bank, is supporting UK companies with high-growth potential to access the long-term financing they need to scale up.
We have also taken significant action to remove barriers to pension scheme investment in a wide variety of asset classes. Members may recall that in the Budget, the Chancellor announced the consultation on further changes to the auto-enrolment charge cap to remove barriers to higher-return investments, while ensuring vital member protections remain in place.
I would like to put on record my thanks to the British Business Bank, which has done a fantastic job in engaging with the APPG over the last 18 months or so and a tremendous job in helping to get that money out of the door. In terms of releasing equity capital—the Minister talked about pensions, which is a very good move by the Treasury—I think Octopus also suggest we allow ISA investments into unquoted companies which, again, could provide a source of equity finance for some of the good, high-growth companies he was talking about. Would the Minister consider having a discussion with the Treasury about this?
That is certainly something the Economic Secretary to the Treasury will have heard and will consider as we look to diversify finance, especially in longer-term projects. We have established the productive finance working group, which is an industry-led body, which has now published recommendations setting out how we can unlock new investment in those long-term assets. I am pleased to say the Financial Conduct Authority has just published its rules for a new long-term asset fund structure, which will make accessing illiquid assets easier and encourage investors to look increasingly further ahead.
Finally, we are encouraging asset management and pension funds to play their part. I am delighted to say that the Chancellor and the Prime Minister are planning an institutionalised investment summit later this autumn, which will be a chance to celebrate the progress and commitment to further industry-led action.
Although we undoubtedly need to do more to widen access to finance for business, we should not overlook the great support that existing lenders provide to our SMEs. Last year, in fact, members of the Finance & Leasing Association provided SMEs with more than £16 billion to fund new equipment, plant and machinery, or software. According to the British Business Bank’s “Small Business Finance Markets Report”, banks provided £104 billion in SME lending, up 82% compared with in 2019.
I am delighted that some major lenders are helping our Help to Grow scheme, which aims to boost productivity by giving entrepreneurs management training through the Help to Grow Management scheme, and helping them to adopt digital technology through Help to Grow Digital. I encourage all hon. Members in the Chamber and further afield to promote those schemes to their SMEs because they are incredibly important opportunities to boost productivity wherever they are in the country.
Government Department procurement processes usually mean that the cheapest quote wins the contract, which might mean that SMEs struggle to compete or operate at greater cost to their business. What steps are the Government taking to level the playing field for these contracts and encourage SMEs to apply?
The Government have gone a significant way to try to simplify procurement options for SMEs. There is undoubtedly an unlevel playing field, as big businesses have the resource and capability of procurement specialists, which SMEs clearly do not. SMEs inevitably have to join the framework as subcontractors, which is not as easy for them or as good for the taxpayer, because it adds extra cost and extra levels. The Cabinet Office is always looking at the procurement framework to see what more we can do to have greater access for SMEs.
The greater the choice of finance options for small firms, the better. We know that challenger banks, including those in the FinTech sector, have the potential to make a real difference so, following the recent Kalifa review, we are rolling out initiatives that will help these organisations try out new ideas and grow.
To boost competition, we have also raised the banking surcharge allowance to £100 million from £25 million, which means that 35 banking groups will fall out of its scope completely. The British Business Bank has a specific objective to support diverse finance markets, and 94.5% of the finance supported by the bank’s core finance programme in 2020-21 was delivered through smaller, newer or alternative finance providers, exceeding its 94% target. I am sure that, over time, these measures will help to further widen small businesses’ finance options.
On the British Business Bank and its objectives, my hon. Friend the Member for Thirsk and Malton talked about delivering net zero. Indeed, we have implemented a net-zero objective within the British Business Bank, and therefore everything it does has to adhere to that objective.
Mr McFadden talked about MREL, and the Bank of England is currently leading a review of that and its approach to setting a minimum requirement for own funds and eligible liabilities. The Treasury is working closely with the Bank, which is considering the responses to its consultation—the Bank will respond in due course. The Government and I thank the banks for their continued engagement. He also talked about bail-in debt, which is primarily a matter for the regulators, and it fits into that review, too.
Marion Fellows asked what will happen to the Government’s pandemic loan schemes, and we clearly have to get the balance right in ensuring taxpayers’ money is used well. As we heard from my hon. Friend the Member for Thirsk and Malton, a number of businesses that borrowed money did not necessarily need it, but they wanted the extra protection and are still sitting on the money. He is right that converting the money into a grant is probably not appropriate in ensuring that we get best value for money.
We clearly want to make sure that we address fraud, and we will have further updates on our estimate for fraud in the Department’s annual accounts, which will be published shortly and will be available to be inspected. We also have the pay-as-you-grow schemes. We have listened to businesses and have made sure to extend the exceptional support, allowing them to repay their bounce back loans on terms that work best for them. Businesses will be responsible for repaying any facility they have taken out, as is right and proper, but they will not necessarily be able to make repayments for the first 12 months or pay the standardised low interest rate of 2.5% afterwards, but the pay-as-you-grow options provide additional support to businesses throughout the life of their loans. We are trying to make sure we can flex as best we can to ensure that businesses have the best chance of recovering and succeeding.
This Government champion small businesses, and we have heard about the wisdom of people who run small businesses. This is not a macro consideration, and it is not just about a unit of economic activity. Entrepreneurs are taking a risk to set up their business, and they often take a personal hit to ensure that those who work for them can pay their bills. From my experience of running small businesses, I know that it adds a totally different perspective on life when someone is responsible for other people’s livelihoods. It is important that we have the human cost of getting it wrong at the forefront of our minds and that we see that small businesses can get the just rewards that they deserve for the risks that they are taking. However, it is also important that the people who work within small businesses get the opportunities that small businesses and SMEs inevitably can and will create as we recover and build back better. We want to ensure that the UK is a great place to be an entrepreneur. As I hope I have shown, we are focused on giving firms throughout the country the right tools to succeed, including access to finance to both launch and grow.
I thank right hon. and hon. Members once again for their excellent contributions to the debate. I look forward to working with everybody on this most important of issues over the months ahead.
I have thoroughly enjoyed this wide-ranging debate. Despite the small number of speakers, we have certainly covered a varied range of topics. As we have heard, access to finance is not an end in itself. We have covered issues such as the future recession preparation, helping to tackle carbon reduction, servicing of covid finance loans, regulation of the financial services sector, diversity in funding, the need for growth, regional inequalities, unlocking pension funds and the need for mutual banks.
I am incredibly grateful to my hon. Friend Kevin Hollinrake, who has been an incredible support to me since I arrived in this place. I am grateful for all he does with the APPG on fairer business banking. He was right to highlight the need to tackle the issue of decarbonisation with the banks.
I am grateful to Marion Fellows for highlighting the work that the Federation of Small Businesses is doing and the need to tackle regional inequalities in this area. I thank Margaret Ferrier for her interventions during the debate and Mr McFadden, who highlighted the need for growth and his concerns about how banks are capitalised.
I turn now to the Minister’s speech. I know that he is a real champion of small businesses and that he understands business and listens. He knows, as do I, that small businesses are the backbone of what will drive the economy forward. I know that he is committed to the cause of our SMEs, and I am grateful for the role that he is fulfilling. I am delighted to hear that the Treasury is prepared to listen on the need for mutual banks.
Question put and agreed to.
That this House
has considered access to finance for small and medium sized enterprises.