Numis research shows falling relevance of bank financing for small companies - UPDATE

5th Dec 2012 11:01

Public equity has been 'a key source' of financing for small and mid-cap companies in the UK over the past 12 months, according to research published by Numis Corporation on Wednesday.The survey, conducted jointly by Numis Corporation and the London Stock Exchange, involved polling the views of 200 chief executive officers and finance directors at companies in the Numis Smaller Companies Index. Some 97% of respondents indicated that they believed access to capital would be critical for economic growth. Public equity was described as a key source of financing for small and mid-cap companies reflecting the difficulty of obtaining bank finance and over 80% of respondents agreed that the government should encourage retail investment in small and mid-cap companies. When asked for their views on the current state of the UK economy, responses were mixed. Some 56% of respondents had a negative view, while 44% had a neutral or positive view, suggesting that companies are adapting to the 'new normal' in the economy. Looking ahead to the next 12 months, almost nine in ten respondents indicated that they expected their company's investment to be the same as this year or higher.When asked about external financing, 58% of respondents reported that their company had sought access to external financing in the past 12 months. Reasons included new investment, acquisitions, refinancing and debt repayment. Smaller firms were struggling most when it came to accessing finance, with 11% of smaller firms - defined in the survey as those with a market capitalisation of £50m or less- citing various different obstacles as the primary reason for not accessing financing. Oliver Hemsley, Chief Executive Officer of Numis, said: "In the absence of bank finance, we are seeing capital markets playing a crucial role in the economy with 97% of all respondents saying that access to finance is critical to economic growth. Over 80% of all respondents agree that the government should encourage retail investment in small and mid-cap companies." Chancellor outlines measures to support investment in small to medium enterprises (SME)In his Autumn Statement presented in the House of Commons on Wednesday, Chancellor George Osborne unveiled plans to consult on allowing investment in SME equity markets like AIM to be held directly in stocks and shares ISAs to encourage investment in growing businesses.It is not clear how much of an impact this would have, if approved and implemented, although Patrick Stevens, a tax partner at Ernst & Young told Sharecast: "It may actually have a real effect because the AIM market is not a huge market. It is shrinking and so we do not need huge amounts of money to make a differencein the market.""For those people who are a bit more sophisticated, to have a proportion [of a stocks and shares ISA] in AIM stock would add interest. It would probably add to risk a bit but also to the rewards," he added.Others however were a bit more critical. This was the case of Julian Bosdet, Managing Director at Abchurch Communications, who opined that: "Any measures that are taken to boost small company funding are always going to be well received - it is widely acknowledged that this is going to be the area of the economy that will drive growth. In April 2010 total ISA funds amounted to £350bn and they are increasingly popular way of saving. "The changes in the Autumn Statement, whilst certainly being in the right direction, do not seem to be quite enough. They may superficially encourage people to invest in AIM stocks through their ISAs, but this needs to be followed up with guidance that will make people comfortable with actually doing this - without fairly widespread take up it will remain another unfulfilled promise."The Chancellor also promised to increase the Annual Investment Allowance tenfold. Up to £250,000 worth of investment in plant and machinery will be eligible for 100% relief rather than the previous amount of £25,000. Ruby Parmar, head of private business at PricewaterhouseCooopers, said the measure "should support growth and encourage capital investment".She added: "The announcement of a consultation to expand the list of qualifying investments for stocks and shares ISAs to include those trading on the AIM market is also a positive move towards increased investment in smaller businesses."MF