Transactional funding and the art of building relationships


We’re living in a time of exciting change where the word “digital” is on many lips. A recent internal presentation from IBM declared that “digital disruption has already happened” given that Uber is the world’s largest taxi company without owning any taxis and Airbnb is probably the largest accommodation provider without owning any properties. What sets these digital services apart is that they do not seek to replace people with technology. They simply utilise technology to enable consumers and providers to connect more easily.

So, how does this digital world impact the SME finance market?  There is a common view that SME owners are happy operating digitally and received wisdom goes that digital means no people, no relationships and a world where everything is rational and transaction based. But the SMEs I speak with value the relationships they have with their funding partners and ask that they’re not kept at arm’s length through digital means.

I believe that successfully funding businesses and helping them to grow in the long term is  much more about relationships than transactional lending. For funders such as Bibby, it’s about taking a relationship-based approach to supporting our clients. Of course, this means providing innovative and up-to-date systems to support this, but it also requires personal communication – the kind a machine built solely for transactional interface simply can’t perform.

But for now it seems that many technology platforms see the trajectory as heading towards a more formalised model of online lending that involves less people.

What I sense is that when a company uses digital means to enable greater people contact in a way that is easy and simple, prospective clients will be happy to embrace the change. The implication for me is that this will not be a ‘rules based’ or ‘tick-box’ approach  but rather, it will need to embrace the flexibility of decision making based on the experience of people, facilitated by technology.

Understanding your customer and their needs is as important as ensuring the right level of funding arrives in their account at the right time. At this stage in our digital progression, we cannot lose sight of the positive role people play in guiding SMEs towards achieving their goals.

At Bibby, we are proud to be in The Sunday Times’ Best Companies to Work For as we feel this is testament to the emphasis we place on the relationships we have with each other and our clients.

For now digital-only platforms are operating in one corner of the market. If they want to move beyond transactional services they will need to provide a greater service to SMEs, a service we believe can only be enhanced through relationships between real people.

Attitudes Towards Enterprise


The Government published its Enterprise Bill on 17th September, which aims to cement the UK’s position as the best place in Europe to start and grow a business. Measures in the bill include reforming the Business Rates Appeals system so that it is more transparent and easier to understand, shifting and reducing the regulatory burden on businesses and extending the Business Impact Target to include regulators. It will also change the way that the term ‘apprenticeship’ is applied.

But the measure that caught everybody’s eye – mine included – was the commitment to create a Small Business Commissioner.

The imbalance in bargaining powers between the smallest of businesses and large firms can be damaging. I’ve written before about the implications that late payments and killer clauses can have on SMEs, so it’s good to see the Government taking measures to combat these imbalances directly. It seems to have recognised and acted on the fact that small businesses often lack the money, expertise and confidence to challenge practices they believe may be against the spirit, let alone the letter, of the law.

The Small Business Commissioner should act as a friend to smaller businesses, helping them to resolve disputes quickly and easily whilst simultaneously providing advice about preventing future issues involving dispute resolution, late payments and contract principles.

The Commissioner is yet to be appointed but they will work closely with Small Business Minister, Anna Soubry. Ms Soubry has been very vocal about the Commissioner’s role and has emphasised her desire for them to pick up the phone and speak directly to CEOs of large firms. Ms Soubry has also asserted that the Commissioner will have the power to name and shame larger businesses who aren’t playing ball. Although this is a last resort, it demonstrates the seriousness of the Government’s commitment to crack down on unfair treatment of small businesses.

Looking abroad for inspiration

Elsewhere, the US has a government agency dedicated to maintaining the wellbeing of small businesses. The US Small Business Administration offers a wide breadth of advice on starting and managing a business, contracting, combatting fraud and also offers extensive loan programmes. The agency summarises its activities with three Cs – capital, contracts and counselling. Having boldly championed smaller businesses for over fifty years, the dividends of this approach are surely self-evident in the world’s most entrepreneurial country.

A country still in the teething stages of dispute resolution development is Germany, which proposed a draft bill early last year with the intention of implementing the EU 2011 Late Payments Directive into national law. Germany is famous for its powerful ‘Mittelstand’, which is hugely productive and has fuelled the country’s growth. By actively acting against late payments in consumer transactions, they are turbo-boosting their position as one of, if not the best countries for SMEs in the world.

The UK may be slightly late to the party when it comes to championing SMEs but for my part, the movement to bolster their voice is laudable and one which I think will be valuable. With the efforts of the USA and Germany for guidance, the UK Small Business Commissioner will be able to learn from its international counterparts and rely on the support of British businesses that want to see this new position wield the power it needs to get SMEs the fair deal they deserve.

For my part, anything that seeks to challenge the culture of big businesses mistreating their smaller partners is to be welcomed.

A response to “Fixing the foundations: Creating a more prosperous nation”


The Business Secretary, Sajid Javid, recently released a plan to tackle the issue of low productivity in the UK. The 82 page report has both commendable and questionable parts but it does nothing to address the productivity puzzle and tellingly, productivity does not even appear in the paper’s title. Having reviewed the report in detail, this is my analysis of what we should keep and what we should bin.

Policies to keep

I’ve always said that spending more on infrastructure is vital. Improving transport systems in the North by building more roads and upgrading metro systems are infrastructural developments that are key to the resurrection of the economy. I strongly believe that building on derelict land in the Midlands would do wonders for business, creating thousands of jobs and plenty of opportunities for new businesses and economic growth. Projects like HS2 will produce many jobs and have a direct impact on SMEs’ bottom lines.

In Javid’s plan, he committed to strategically connecting cities in the North to create a ‘Northern Powerhouse’ – a phrase that has become a rallying cry in the House of Commons and amongst SME owners of late. One proposal included a new Roads Fund, paid for by changes to the Vehicle Exercise Duty, which will be enhanced further by plans for an “ambitious” new Roads Investment Strategy for 2020-25. With huge investment plans for oyster-style travel systems and more efficient travel routes between large northern cities, it’s about time the huge potential of the North is unlocked. A £100bn injection into infrastructure is welcome news for SMEs in the region who require such funding in order to flourish.

Regional devolution is a mixed blessing. The notion of handing powers down to City Mayors is a double edged sword. Localised politics is healthy and provides districts with the opportunity to govern their respective areas in ways that maximise productivity. But, localising politics can also result in lower quality politicians with myopic tendencies and is also highly sensitive and vastly complicated. Coming from Wolverhampton myself, I believe that most people in Wolverhampton do not want to be dictated to and governed by “Greater Birmingham”. So the Government will have to be very careful with the ways in which they pass on their powers. The only way to find out if this will work is by actually trying it, so I hope that the Government’s repetition of the term ‘Northern Powerhouse’ is well thought through.

Policies to bin

It was frustrating to see the Government prioritising the introduction of a ‘New Bank Unit’, committed to encouraging new banks to enter the market. Unfortunately, forcing competition onto the commercial high street is not going to fix the financial troubles of the UK and is not necessarily welcome news for SMEs. Why this has been included in the Government’s Productivity Plan is unclear – introducing more and more challenger banks won’t fix the skilled workers shortage, nor will it improve the poor output-per-hour of our workforce. Indeed, lots of SMEs we talk to suggest that there isn’t a problem accessing finance so why the need for more banks? All it might do is make none of them of sufficient scale to be efficient and make the investment required to take banking forward.  It will be interesting to see how these new banks cope during the next credit cycle. Could it be that the Government is building the financial services equivalent of the Maginot line when in fact the next battles will be fought in a different way?

Another feature of the plan was the promise of cutting £10bn worth of red tape in the financial industry. We have already heard this promise delivered in the Queen’s Speech two months ago but we’re still left completely clueless as to where and how these savings are going to be made. Until details are shared, this remains an empty promise that doesn’t properly address the issue of productivity that is plaguing SMEs and the wider UK economy.

My assessment?

The plan makes some good proposals which may improve productivity indirectly but it does not tackle the issue head on and one key feature of it (the New Bank Unit) is just a continuation of efforts to boost high street bank/lenders competition with little thought for the real financing needs of SMEs. The plan rarely mentions SMEs and has not put them at the centre of this proposal; rather, it seems to just advance a particular agenda with political goals in mind, rather than truly trying to solve the productivity puzzle that undermines SMEs and the wider economy.  People may view more, smaller banks as inherently less risky than large ones. I am not so certain. Having been through the 1990 recession and seen the impact on small banks I can say that small is not necessarily beautiful.