Scale-up solutions

A recent report is advocating a move away from using debt to finance start-up businesses in the UK and instead to harness the power of equity finance, allowing firms to find investment through crowdfunding, business angels, venture capital or on the public markets.

The 2016 report, entitled, 1,000 Companies to Inspire Britain, is the third annual edition of such a publication from the London Stock Exchange and is described as an “annual celebration of the fastest-growing and most innovative small and medium-sized businesses in the UK”.

According to its authors, the report forms part of a wider vision and campaign to support UK high-growth firms, which it describes as the lifeblood of the economy, in the journey “from start-up to stardom” and to create an entrepreneurship revolution.

However, it argues that, in order to move from start-up to scale-up, new businesses should embrace equity finance. It gives the example that while 80 per cent of SME financing is dependent on bank lending in Europe, in the US 60 per cent is raised by offering friends and family a stake in the business. This is why, it says, the US has been the quickest nation to recover from the financial crisis.

According to the report, the next step in the UK should therefore be to give alternative forms of finance to debt a fair chance, changing the focus of the tax system here in favour of growth funding. To do, the report argues, would reduce the risk to the economy posed by excessive debt and to support jobs and real, long-term investment in the very best of British companies and talent.

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