Increased awareness and greater use of equity finance could help more firms to invest, grow and boost the long-term health of the UK economy, according to a report by employers’ organisation the Confederation of British Industry (CBI).
The CBI report, entitled
‘Slice of the Pie’
, highlights the UK’s overreliance on traditional debt finance and the serious under-utilisation of equity finance. Half of all small and medium-sized firms (SMEs) rely on bank loans, while 36% use overdrafts. By comparison just 3% use equity finance, which lags behind the European average of 7%.
The low figure is despite the majority of growing UK businesses which have used equity finance reporting that it had a positive impact on their company (66%), and four out of five saying that they would use it again to fund business growth. Eighty-one per cent would recommend equity finance to other companies.
“We need to shatter the equity finance glass ceiling and encourage growing firms across the UK to use this largely untapped resource,” said Katja Hall, CBI chief policy director. “It’s a myth that using it results in loss of control and decision making.
“Equity finance is one of the most effective ways for small and medium-sized firms to access investment capital and there are plenty of investors who take a minority stake.
“The government should pilot a tax incentive for retail investors who hold their equity stakes for a certain period of time, to stimulate and nurture more long-term investment culture which growing firms are looking for.”
The report states that the main concern that businesses have over using equity finance is a fear of losing ownership (46%). A quarter of respondents said that they were concerned about a loss of decision making power. These worries are tied to a lack of awareness of the various different types of equity finance – while small and medium-sized firms are aware of venture capital and private equity, just half said that they were aware of public equity.
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