There has been no shortage of proposals about how to improve SME lending facilities in 2011 – intellectual property law reform, greater competition in the high-street business lending arena, a new SME credit scheme, invoice finance. Now, R&D tax credits are under the spotlight.
Although the government increased the incentives on offer to SMEs regards R&D tax credits in the 2011 Budget – small company R&D tax credit rose to 200% in May and will rise to 225% in 2012 – the industry feels that more needs to be done in order to stimulate growth and create jobs. A group of major manufacturers, citing a new PricewaterhouseCoopers report, claims that an overhaul of the R&D tax relief system could increase national R&D spending by £390m and create nearly 8,000 jobs.
This growth would certainly be a boost – maintaining cash flow is a major issue for SMEs at present –and for those either directly or indirectly involved in R&D activity, the generation of new revenue and capital would be welcome. However, it is clear that such reform would have to form part of a larger plan for the problem of small company credit to be properly addressed.
Strong growth in the use of invoice finance products, such as invoice discounting and factoring, which allows companies to access capital in invoices on an invoice-by-invoice basis, underlines a growing trend for non-traditional SME lending facilities.
The next phase of the Chancellor’s business finance proposal is due soon and it will be interesting to see if R&D tax system reform is part of his development plan. At present, the government is indicating that such change is not a consideration for the short term, but with the pressure to help small businesses gain greater access to credit refusing to abate, it could be forced to add some more weight to its actions.
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