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I have, for some time now, been persuaded that the creation of the British Business Bank (BBB) was a good idea, and my various interactions with it over the last couple of years have also convinced me that not only was the concept a good one, but that the delivery of its aims has been, by and large, well-executed, nimble and responsive.
Its recent annual report has done little to change my mind on this. In hitting its four key objectives - volume, diversity, awareness and returns - it has done a good job. Well done Keith Morgan and team BBB.
Can it do better? Actually, I think it can.
The objective of any organisation set up to intervene where there is a problem with a market should be to make itself redundant. I know that sounds like a strange thing to say, but if the small business finance market place was working properly then you wouldn’t need government intervention in the first place.
The objective of any organisation set up to intervene where there is a problem with a market should be to make itself redundant.
It therefore follows that although volume, diversity and return are important operationally awareness is, on a strategic level, by far the most important goal. Right now the reality is that there is no shortage of funding available to SMEs. Well over a hundred new propositions have entered the market over the last few years offering business owners a vast array of options. From cashflow lending to long-term loans, pension-led funding to invoice auction sites, it’s all there. So what’s the problem? Back to BBB goal number three; awareness.
Reading their report carefully you could conclude that, although they have achieved an increase in awareness of alternative finance, it is pretty modest; an increase from 45 to 48% (of whom and how measured I’m not sure, but let’s go with their figure for now). Given the acres of press coverage around alternative finance that’s pretty modest and, frankly, would have happened anyway as a result of the PR efforts of the finance providers themselves, so BBB can hardly take credit for it.
We mustn’t confuse awareness with trust, however. If 48% of SME’s are now aware of the existence of non-bank sources of finance, why are only around 10% actually using them? It can’t be product choice. As I mentioned earlier, there is something out there for virtually everyone. Assuming that demand is still high it must come down to a natural caution when confronted with something new and not entirely familiar.
BBB can’t market individual financing propositions, but it can market, campaign and advertise the fact of their existence.
The task facing BBB is to make itself no longer needed. To achieve that it has to create a properly functioning marketplace where business owners can shop confidently from a range of funding solutions that enjoy their confidence and understanding. That can be delivered in part through education, but crucially through marketing. People trust brands they recognise. Demonstrably so, since the main banks have, over the past few years, had appalling press and yet they remain the first port of call for the overwhelming number of SMEs seeking funding.
BBB can’t market individual financing propositions, obviously, but it can market, campaign and advertise the fact of their existence. That endorsement will naturally increase trust levels, and thus usage. In time, and handled properly, such a policy will deliver an orderly and competitive SME financing marketplace and we will no longer need BBB to be lending taxpayer’s money to SMEs. That should be their key strategic objective. For the meantime, however, well done and keep up the good work.