SMEs, BANK RELATIONSHIP & VENTURE CAPITAL in UK

SMEs, Bank Relationship Strength, and the Use of Venture Capital: UK Business Environment

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SMEs, Bank Relationship & Venture Capital in UK

Introduction

Background

The contemporary UK small and medium enterprise sector experiences a set of numerous policy related dilemmas in reference to the influence of the banking systems on the operations of such business entities. The banking sector has a substantial impact on the sustainability of the UK SME sector, as these companies are directly dependant on the financial policies implement from the banking sector. Unlike the multinationals and other larger business entities the relevant companies in the SME sector have very specified set of attributes, which make them highly dependent and interlinked with the banking policies (Abadie et Al, 2004, pp. 310). The strategic outlook for these firms is generally on a shorter term basis as compared to the larger firms, as any cash flow issues in short term scenario can impact the survival alternatives of the companies. In reference to the current global financial environment the volatile and inconsistent policies of the banking sector, which have shown an increase in the merging and consolidation activity, the relationship of the banking sector with the SME firms is substantially impacted. This phenomenon in the UK banking sector has led to several funding gaps and inconsistent relationships with eth banking sector and the SME firms, who depend on the persistent funds provided by various sources to continue their operational activities. The primary sources of funds for the SME sector include banks, various external finance sources and also venture capital. Due to the dynamic policy changes that have occurred in the UK banking sector the SME firms have changed their funding sources from the traditional banking sector to the other external sources such as venture capital.

The majority of the current relevant research on the UK SME sector has helped highlight several important attributes. However this is only a recent development and in the recent past there was a shortage of the adequate research carried out between the relationship of SME sector and the venture capital activity in the UK. This is surprising and astounding revelation considering the significant impact of the SME sector on the UK economy. The 23 million SMEs present in the UK, formulate almost the absolute majority of the economic activity carried out in the region, as representing up to 99% of all companies currently present. With the consistent and wholesale changes in the banking sector in the majority of the developed countries, the venture capitalism source of funds has become an increasingly popular and influencing phenomenon, especially in the UK business environment (Sharpe, 1990, pp. 1077). The example of the US case study is a relevant and important factor, in realizing the impact of venture capitalism in the economic growth of the country. In the US venture capitalism is defined as one of the most important capitalism attributes as it has provided the impetus and foundation for the growth and development in ...