As former regulator Sir Andrew Large begins yet another inquiry into whether banks are starving small businesses of credit – in his case, specifically Royal Bank of Scotland – it is worth asking whether we are worrying most about the right people. The small and medium-sized enterprises that believe they have been unfairly turned down for lending may complain this is inhibiting their growth potential, but at least they were able to get off the ground in the first place. The next generation of SMEs may not be so fortunate.
That, in any case, is the conclusion of a new research project from the Economist Intelligence Unit. Commissioned by Zurich Insurance, the EIU's research warns that the entrepreneurs of the next 10 years are already so saddled with debt that they may never find the cash to get their businesses off the ground.
The argument is not difficult to grasp. On some estimates, the average student now leaves university with debt of as much as £50,000. A good chunk of that debt may not be due for immediate repayment, but the chances of most young graduates amassing any sort of savings with which to launch a business look slim. Nor are they likely to be welcomed warmly by most banks should they apply for further credit with which to set up a new business.
In any case, this is not simply a question of spare cash. A key ingredient in entrepreneurship is a willingness to take some risks. But anyone with that sort of debt hanging over their head is very likely to be more risk-averse.
Nor do young would-be entrepreneurs have access to assets with which they might be able secure business funding. With home ownership at its lowest level in the UK since the mid-1980s, and young first-time buyers in particular locked out of the market, securing the new business against a property is not an option for the vast majority of young entrepreneurs.
Britain is not alone in having this problem. US policymakers are also increasingly worried that their further education graduates are so indebted that there may be an impact on small business formation.
Back home, it is difficult now to see where we will find the sort of growth in business start-ups that the economy needs. with new businesses suffering such high attrition rates, that has potentially disastrous implications. Can anything be done?
Well, at the margins, there are initiatives that will help. The Start-Up loan scheme launched by the government two years ago has, after a slow start, begun to dole out cash. More than 2,000 young entrepreneurs have received funding and the scheme is being expanded. Still, with total funding of just £117.5m available up to 2015, this is small beer. We should also welcome the Seed Enterprise Investment Scheme, which provides tax breaks for investors in very small and very new firms.
Nevertheless, a disastrous impact on youth entrepreneurship may yet come to be seen as one of the most damaging and unforeseen effects of the decision to substantially increase tuition fees and student loans. And that impact will be felt more keenly over time, as the working population is increasingly dominated by those with debts of this sort (and as the current generation of SME leaders begin to retire). The economy, which depends on a cycle of new business formation, will be worse off as a result.
None of which means we should forget about the SMEs on which Sir Andrew is focusing. The growth they can contribute is much needed. Still, if the owners of these growing businesses are banking on one day being able to sell their firms to younger entrepreneurs with cash to invest, they may be disappointed.
Chargemaster is ready to switch on
When will electric vehicles begin to capture significant market share in the UK? One issue is the chicken-and-egg nature of infrastructure: more charging points are required to keep electric cars powered up for the road, yet it's difficult to justify putting in those points until there are sufficient numbers of vehicles
Enter Chargemaster, which will today unveil its intention to float on the Alternative Investment Market. The company, which wants £6m and expects to be valued in excess of £30m following the IPO, produces charging equipment for the home, the office and public areas.
The business is already trading strongly, having made a pre-tax profit of £1.24m in 2012 on sales of £3.6m. Now it thinks the sector is about to take off: it points to the European Commission target of 795,000 charging points in the EU by 2020, including 122,000 in the UK.
24/7 Gaming bets on Aim flotation to raise funds
Dutch business 24/7 Gaming will today announce it is to float on the Alternative Investment Market, as the company seeks funds to expand its marketing activities.
The business operates the WannaGaming brand, designing and operating games that gamblers can play on their smartphones and tablets – it already has around 15 such games on which players can stake cash.
There is no doubt this is a fast-growing sector. Market consultant Juniper Research believes that the mobile-gaming industry will be generating annual revenues of $100m (£67m) by 2017. The big question, however, is what view governments will take of mobile gaming – it remains illegal in the US, for example.
Any liberalisation in North America and other markets would hugely increase the potential value of the mobile-gaming sector.
Trading information so far is limited, but 24/7 thinks it is well-placed to benefit from market growth.
Small Business Man of the Week: Carl Waldekranz, CEO, Tictail
We founded Tictail two years ago in Sweden. I'd been working at a design agency where I'd be doing lots of projects with people like Spotify, but I knew I wanted to stop being a consultant and create a product of my own.
"The clients I liked working with were e-commerce retailers and it struck me that for all the noise around the web and tablets and so on, it was difficult to launch your own online retail operation unless you had specialist knowledge of the technology.
"That's where the inspiration for Tictail came from. The idea was to democratise e-commerce – to make it really easy for normal, mainstream people to set up their own online stores. On our site, you really can do that in a few minutes.
"Once we had the idea, three of us spent every weekend for six months working for 72 hours non-stop on getting Tictail up and running.
"Within a year, we'd reached critical mass, with more than 15,000 users around the world. Sweden and the US are our biggest markets but we launched earlier this year in the UK, where we already have more than 2,500 retailers selling everything from musical instruments to home decor and designer clothing.