The Small Business, Employment & Enterprise Act addresses many of the concerns Britain’s small businesses face—from securing financing to the crippling culture of late payments. The law is designed to make Britain the “best place in the world” to start a business by slashing red tape and encouraging transparency.
Passed into law on March 26, The Small Business, Employment & Enterprise (SBEE) Act contains lots of new legislation that will impact small-to-medium sized businesses across the U.K. The much-discussed, wide-ranging act covers everything from the gender pay gap to whistleblower protection. A key focus of the act addresses the availability (or lack thereof) of finance for Britain’s SMEs and startups.
Under the new legislation, business owners who are denied financing from some of the U.K.’s largest financial institutions will get a second chance with alternative lenders. Ten “big banks” would be required to pass on details from the denied loan applicants to an online platform that will help match them with alternative finance providers, with the applicant’s permission of course. Banks affected by the new rulings include: RBS, Barclays, Lloyds Banking Group, HSBC and Santander.
The goal of opening up credit information is to make it easier for businesses to find financing from a source other than their bank. Traditionally, SMEs and startups in the U.K. (and across Europe) have been more reliant on bank-based financing than similar businesses in other nations. Research from the European Commission showed SMEs in the United States received five times more equity funding than their European counterparts. The new provisions will educate businesses on the non-bank options available to them.
Sacha Bright, the founder and chief executive of the U.K.-based crowdfunding aggregator, BusinessAgent, told the South Wales Argus, “There are alternatives out there for these businesses, but despite rapid growth in the alternative finance market, there is still a significant lack of awareness. This will only be accelerated by effective signposting from the places where businesses still tend to go first – their bank.”
Lawmakers moved quickly to make the SBEE Act a reality, but changes will not be felt by SMEs immediately. Changes will be implemented over the next 12 months. Business minister Matthew Hancock believed the outcome will be worth the wait. “The Small Business Act is the first set of laws specifically to help level the playing field for small business,” he said in a statement. “Coming from a small business background myself, I know first-hand how cumbersome bureaucracy can stifle your ambitions to grow.”
The new legislation also sets out guidelines for the creation of new “challenger banks.” Legislators are optimistic these new financial institutions will improve competition for businesses and open up even more finance for small businesses.
Late payments can cripple small businesses. The SBEE Act attempts to help end the late payment epidemic that is limiting small business. Outstanding payments total nearly $60 billion in the U.K., with much of the funds owed to small businesses. The SBEE Act requires large companies to review their payment procedures twice a year and report their findings back to the government. The thinking behind the move to reporting is creating greater transparency into payment practices. Small businesses have more information on what to expect before entering into contracts.
Beyond lending and payments, the act introduces several other pieces of legislation that will impact everything from public policy to employment law. A last-minute amendment to the act addresses the gender pay gap. Under SBEE, businesses with 250 or more employees will have to publish the difference between average pay for their male and female employees. It also introduces a Small Business Appeals Champion. The role is designed to improve the relationship between regulators and regulated making it faster and easier for businesses to challenge decisions made by regulators. British SMEs looking to expand abroad will also find additional export finance and support within the lengthy act, which addresses 12 areas affecting small business.
Streamlining processes and reducing the legislative burden on SMEs was a common refrain among lawmakers discussing the overall achievements of the act. “Small businesses provide jobs for millions of people across the country and are driving the economic recovery. The Small Business Act will create the right environment for small businesses to continue to thrive by giving them greater access to finance to help them innovate and grow, and make it easier for them to export goods and services made in Britain,” Business Secretary Vince Cable said.