Why should our opinion count?
Tina Boden and I are both independent business owners, with over 50 years combined experience of starting and running our individual businesses. I founded, in 1996, and still co-own SFEDI which improves the quality of enterprise support and learning in the UK. I have conducted research and participated in many Government funded consultations into what helps pre start, start ups and micro businesses (95% of all businesses) survive and thrive.
We are leading authorities on micro (0-9 employees) enterprise owners' survival and growth and work with many large private sector organisations to help them to engage with and provide better products and services. We co-founded and co-fund the free and indie Enterprise Rockers movement (est: Jan 2012) which campaigns for and backs micro enterprise owners everywhere and run a global #MicroBizMattersDay in January each year. My blogs at Business Zone are often the most read and most commented upon each year. We are in touch with real self employed people's views on a daily basis.
We do no lobbying as we are not a membership organisation but an informal community of many hundreds of thousands. We are not political as our aim is simply to help each other keep going in our micro businesses. Our four informal social media campaigns #PayInThirtyDays, #Indie25ER, #MicroBizMattersDay and #NotAnSME are global.
We support all Government initiatives to help prospective and existing micro business owners in all countries. However, we believe that in England our Government should take action to prevent Start Up Loans becoming a financial burden for many, as Student Loans have become.
Hard selling of loans is dangerous
We engage with hundreds of thousands of micro business owners on an informal basis - as peers. We don't sell our peers anything - not even membership. Yet, every week we get approached by government providers wanting us to help them generate leads for schemes they're selling to start ups and micro business owners.
The most hard sell initiative of these schemes is ‘Start up Loans’. Government is paying a fortune in provider fees, advertising, marketing and administration costs to get high take up. It's fabulous news that Government are backing start ups but there are dangers in the way it's being sold.
Start Up loans probably average £6,000 per loan which is 3 times more than most micro business owners start up with and at least half as much as the owner will earn in the first 12-18 months. The costs of starting a business have consistently reduced over the last ten years. Although we do want Government to continue supporting new businesses and believe low cost loans are important, we say 'No' to these Government partners and providers. We would like to say ‘Yes we'll promote the scheme for you’.
One in five may become defaulters as 99% of pre-start business plans are fiction
Our prediction is that at least 1 in 5 new business owners will default on repayments and 2 in 5 will get into financial difficulties because of taking a Start Up Loan. Our guess is also that the survival rate of start ups with a Start Up Loan will be no higher than those that have started without a loan but have sought free start up advice from their local Enterprise Agency. The intent behind the 'Start Up Loans' scheme is great but the timing of when the loans are granted is, in too many cases, rubbish.
We know that 99% of pre start-up business plans are fiction because it’s only when the business has live, paying customers that it can get its offer right and start to predict future income. In fact one of the most watched videos on YouTube with over 1.5 million views is by American entrepreneur, Mark Cuban entitled 'Anyone who starts a business with a loan is a moron'.
Every conference we speak at there are successful, new, micro business owners preaching lean start up, test trading and repeat our own advice to prospective business owners which is - 'bootstrap don't borrow'.
Advisers and mentors in the scheme, see it as their job to help the new business owners get going, with a loan, as that is how the provider gets paid. The independent panel will more often than not approve the loan request as the business plan is well presented and the advisers have assisted the start up business owner in its preparation.
Some advisers may not even be in a good place to understand the chances of success because they haven’t started and run their own business. In our experience 4 out of 10 people that want to start a business, even with a compelling business plan, aren't ready to start immediately.
Test trading and/or trading is essential before loans are granted
The new business owner often hasn't a realistic view of how much they’ll earn which is why test trading is so important and we say don't give up any of your other income sources, including jobs, until you've test traded. We also recommend ‘bootstrap don’t borrow’ until you really know what you’re doing and how to grow your business.”
Naturally we want new business owners to have access to these Start Up loans and welcome any Government support to new micro business owners (95% of all UK businesses).
Our solution is to not allow anyone a Start Up loan until they have been trading or test trading for an absolute minimum of 6 months. “We’d prefer if this was 18 months test trading and trading but we realise Government are not going to change the name of the scheme and 18 months makes it a 'New Business Loan' rather than a 'Start Up Loan'.”
We understand that the Start Up Loans scheme allows for these loans to be granted for up to two years from when the business starts trading so we are not proposing a major change to the scheme.
The other advantage of adopting our proposed improvement to the scheme is that is that most Governments I've worked with are most interested in new micro businesses that grow into substantial businesses taking on employees. We can't 'pick winners' but it is more likely that a loan will assist a new business to survive and thrive if the loan is granted against an accurate business plan based on real trading figures.