Doug Richard: Now our start-up companies can bank on angels for investment

Small Business: There is nothing new about banks being a bad option for British entrepreneurs looking for finance

This party conference season, we've seen both the Government and Opposition jostle for position to take the biggest shot at the banking sector. First up was Ed Miliband with a familiar call to separate the retail and investment arms of the major players.

The Business minister Michael Fallon has also been on the attack, writing to bank CEOs to question their commitment to the government's Enterprise Finance Guarantee and threatening to name those who do not use it to increase lending to small businesses.

All this against the backdrop of the news that bank business lending fell by £1.2bn in August. With politicians on both sides queuing up to preen their business credentials, it's no surprise banks are taking a public flogging. Banks are not only an easy target, but when it comes to SME financing, they're fundamentally the wrong target. Attempts to force the banks to lend more to small businesses are a waste of time, demanding something that is fundamentally against the banks' nature.

Banks are not going to change their low-risk lending criteria, and though political broadsides may play well to the gallery, they are of little value to small business owners looking to grow a business, or entrepreneurs seeking funding to get an idea off the ground. Nor is it the role of government to be giving banks orders about what they lend, and to whom.

That is not to say the Government is powerless to help boost the enterprise culture so vital to the UK's economic future. When it acts on a unilateral basis, controlling what is in its gift, the Treasury can be a powerful force for Britain's business good. The biggest economic lever at the unique disposal of the Government is, of course, tax. The best thing the Treasury can do to boost enterprise-led recovery is make the UK a desirable place to do business in tax terms.

It is showing what is possible with the Seed Enterprise Investment Scheme (Seis), exactly the sort of initiative needed to ensure the UK economy rises out of recession on a wave of start-up activity. Seis offers tax relief rising to 50 per cent on investments of up to £100,000 in small businesses. By targeting investments in young start-ups (those whose trade is no older than two years, employing no more than 25 and with maximum gross assets of £200,000), it will help drive finance towards the small businesses that need it most.

A genuinely radical move, Seis promises a twin benefit for British business. By widening the pool of business investors, it will go a long way to narrowing the funding gap for small business owners who hit a brick wall seeking funding from the banks or other traditional means. By shifting the focus on to angel investors, it can also herald a change of culture about start-up capital.

There is nothing new in banks being a bad option for entrepreneurs looking for finance. Many will fail to get their proposal past first base, and those who do land a loan are unlikely to be shouting about the terms. But where small business owners might once have claimed with justification that their hands were tied, sufficient options are now available to make banks the last port-of-call.

Angel investment remains an attractive source of funding for start-up owners, who can rely not only on up-front capital but the advice and support of an experienced business owner fully invested in the success of their venture. As someone who works closely with aspiring entrepreneurs at my School for Start-ups, I have often seen how important mentoring can be for those looking to start a business for the first time, and the guidance of an angel can make all the difference in helping new business owners get past the teething and early-stage growth pitfalls.

Where access to finance is concerned, online platforms are revolutionising the way entrepreneurs look for investment. The growth of crowdfunding and peer-to-peer lending sites means small business owners can now access widespread networks of potential investors rather than be restricted to high street bank s.

Entrepreneurs are already embracing the flexible funding options out there, sidestepping the banks' unwillingness to lend to SMEs. It's time policymakers dropped their obsession with forcing the banks to lend, and caught up with them.

Doug Richard is beginning his "Windows of Opportunity" roadshow, to highlight alternative small business financing options, in Nottingham on 11 October. Visit: schoolforstartups.co.uk/woo

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