Widen finance for medium-sized firms

The success of medium-sized businesses is critical to the UK's future prosperity, but they need greater support from the Government and business to really take off, CBI Director-General, John Cridland, said at the CBI's inaugural MSB Summit in London.

Stressing the confident mood amongst many companies, Cridland highlighted the need to widen the supply of finance, step up support for exporters and ensure that skills challenges are tackled in order for MSBs' huge potential to be fully realised.

In a speech at the Summit, he called for:

• The establishment of a private placement market for MSBs to issue debt to institutional investors, following the French example, which has grown to a market worth £4bn with over 50 transactions a year.
• Bolstering the late-stage venture capital market with new players, such as the Business Growth Fund and large corporate investors.
• Reform of capital gains tax to incentivise long-term equity investments in MSBs and promote a culture of equity finance in the UK.

The CBI also published new research by Millward Brown, the global research agency, on the outlook for MSBs. With over half of the 200 firms surveyed (51%) having grown by at least 10% a year over the last three years, the vast majority (82%) were confident the next five years would bring further growth. Separately, 86% are looking to develop a long-term strategy for expansion.

Cridland commented: "Our forgotten army of MSBs contribute a huge amount to our economy. Despite making up less than 2% of all British companies, they generate almost a quarter of private sector GDP, and employ one in every six people. MSBs have come out of the downturn leaner, fitter and ready to kick on. Up and down the country, they are brimming with confidence, and many are growing quickly. Unlocking their potential to grow is vital to our future prosperity. With the right support from government and other businesses, they can be the engine of our economy into the next five years and beyond."

António Horta Osório, CEO of Lloyds Banking Group, said: "Medium sized businesses are playing a critical role in the UK's economic recovery, creating jobs and growth across all regions of the UK. That's why, along with the CBI, we are supporting the first ever MSB summit so that we can help the sector reach its potential."

On boosting the supply of finance, the research showed that:

• Almost a fifth (19%) of MSBs view lack of supply as a barrier to accessing finance, but only 8% feel a lack of knowledge is a significant hurdle.

Cridland said: "We are simply behind the curve in developing patient capital options for MSBs. The United States, France and Germany have all stolen a march on us. The banking sector cannot do all the heavy lifting, so we urgently need to plug the finance gap that exists for both equity and debt."

On exports:

• Overall, nearly two-thirds (61%) of MSBs export. More than half (56%) export to the EU, and over a quarter (28%) do so to North America. Almost a third (32%) export to Asia, and a quarter (25%) to Africa, showing that MSBs are ready to cast the net wide for growth opportunities.
• However, barriers to exporting remain. 28% of MSBs find it difficult to identify opportunities in foreign markets, whilst one in four still believe there to be sufficient business opportunities in the UK.

Cridland commented: "In spite of a tough international outlook, it's encouraging to see so many MSBs looking to sell their products and services abroad.

"UKTI has done a good job in refocusing its support towards mid-market firms, but we need to do better at directing companies towards the support that is available."

On increasing skills within MSBs:

• The skills shortage facing all companies is strongly felt by MSBs. Almost three quarters (73%) see getting the correct technical skills as a major challenge for growth, with nearly half (43%) saying the same for skills at middle management level.
• MSBs also recognise the importance of digital knowledge and skills to success. Nearly three fifths (59%) feel that better digital capabilities would boost their company's growth, with 49% believing that better use of social media will help achieve this.

Cridland said: "MSBs need support to make the transition from a small company with less formal processes, to a more robust international operation with activities across the globe. Getting the right skills into the business at the right time can make or break success for an MSB."