In December 1999 fixed rate loans accounted for 34% of term lending compared with just 28% in December 1996. Fixed rate loans provide SMEs with greater certainty of expenditure streams, assisting business planning and enabling businesses to operate in a more certain financial environment. UK small businesses have also increased their use of non-bank forms of finance, such as factoring, leasing and, more recently, equity finance. A recent survey showed that a higher proportion of SMEs used asset based finance in the UK than in any other EU country except Ireland. This trend, to move away from the reliance on short-term overdraft financing that prevailed in the early 1990s, towards a wider variety of types and sources of finance, is to be especially welcomed. It is widely acknowledged, however, that rapidly growing businesses require equity as well as debt finance. The formal venture capital industry often finds it difficult to help at the very small end. That makes it all the more important to develop the informal venture capital market, including the considerable potential contribution of business angels. In addition to their ability to inject smaller amounts than are viable for formal venture capital firms, business angels are also able to provide considerable technical expertise and general management advice. Estimates from Mason and Harrison suggest that business angels already invest £ million per year: true, it’s a long way below the US but it’s a significant contribution and one that should be encouraged.
I have mentioned that finance for small firms should be available and appropriate, but it also needs to be accessible. UK banks and other finance providers have recognised this and have attempted to make themselves more user-friendly to their small business customers. Banks have devoted substantial resources to increasing the awareness and skills of lending managers at the branch level. As a result, many small firms now believe, and perception is important, that banks understand their business better. In recent years, the NatWest/SBRT Quarterly Survey of Small Business in Britain has consistently found that access to finance is not a significant problem for UK small businesses, with just 2% of respondents currently rating it as a key problem facing their business. The Cruickshank Review found no evidence that small firms currently have difficulty obtaining bank finance. The Review, however, did highlight some barriers to the raising of equity, including - again - problems of asymmetric information, the risk level associated with financing new firms with no established track record and the costs for the investor in structuring finance. It also raised issues about conditions in the banking market for SMEs; these have been referred to the Competition Commission. Technology-based small firms Perhaps I could conclude with some words about technology-based small firms. Technology-based firms are vital to the UK economy in maintaining competitive advantage in global markets. Technology-based firms are often themselves entrepreneurial. But just as they have a unique role in the economy; they also have unique financing needs.