Business owners no longer necessitate a market void, they merely require money at hand
In the bustling business landscape of the UK, Small and Medium Enterprises (SMEs) play a pivotal role, accounting for 99.2% of all businesses and employing around 60% of the UK workforce. These SMEs contribute a staggering turnover of £1.8 trillion to the economy [1]. Despite this significant impact, a notable gap persists in the market for facilitating business acquisitions and successions.
One method of becoming a business owner without starting from scratch is through Entrepreneurship Through Acquisition (ETA). This approach is growing in popularity, particularly in the US, where top business schools offer "Entrepreneurship Through Acquisition" electives [5]. However, in the UK, the lack of dedicated government-backed loan schemes for ETA or business succession financing is a hurdle that many aspiring entrepreneurs face.
The US Small Business Administration (SBA) supports ETA primarily via its SBA loan guarantee programs, such as the SBA 7(a) loan program. This support includes requirements and structures favourable to acquisition deals, such as seller financing subordinated under SBA loans and standby creditor agreements, which help buyers to bridge financing gaps, lower capital gains taxes, and successfully acquire and grow small businesses [2][3].
A suitable UK government-backed scheme could resemble the US SBA model by providing:
- Government-backed loan guarantees targeting acquisition financing, reducing lender risk and encouraging banks to offer longer-term, lower-cost loans for business purchases.
- Structured seller financing incentives, possibly including tax benefits for sellers who finance part of the transaction, to ease purchase funding and smooth ownership transitions.
- Specialized advisory services, offering expert counseling for ETA entrepreneurs to navigate acquisition, operations, and growth.
- Targeted support for succession planning, to help retiring business owners transfer ownership smoothly, securing business continuity, local jobs, and economic stability.
Such a scheme would address the gap in the UK market for facilitating business acquisitions and successions, promoting entrepreneurship through buying and growing existing enterprises rather than only start-ups. This could revitalise SME growth, preserve jobs, and create wealth by leveraging the established foundations of existing businesses, modeled on the US SBA's demonstrated ETA support framework.
Many budding entrepreneurs considering ETA may require a bank loan to fund a significant portion of the acquisition costs. The SBA-backed loans in the US come with more favourable terms, including longer repayment terms (up to 25 years), competitive interest rates, and easier qualification criteria compared to regular bank loans [4]. The UK falls notably short of the US in this area, as it pertains to providing financial resources for ETA.
The desire to be an entrepreneur is high, with 61% of Brits expressing a desire to own their own business, according to the Aspiring Entrepreneurship 2024 Report [6]. This desire is particularly strong among younger age groups, with 73% of 16-24 year-olds and 80% of 24-34 year-olds expressing interest. In light of this, Rachel Reeves, a Member of Parliament, stated that the UK is "open for business", implying a potential need for government-backed schemes to facilitate small business succession and support aspiring entrepreneurs.
As the UK continues to strive for business growth and economic stability, the implementation of a government-backed scheme for ETA could be a significant step forward. This could not only boost entrepreneurship but also preserve the vibrant SME sector that forms the backbone of the UK economy.
References:
[1] Office for National Statistics. (2020). Business population estimates. Retrieved from https://www.ons.gov.uk/businessindustryandtrade/business/businesspopulationandentry/bulletins/businesspopulationestimates/202003
[2] US Small Business Administration. (n.d.). SBA loan programs. Retrieved from https://www.sba.gov/funding-programs/loans
[3] Small Business Majority. (2019). Entrepreneurship through acquisition: A promising path for a new generation of small business owners. Retrieved from https://www.smallbusinessmajority.org/resource/entrepreneurship-through-acquisition-a-promising-path-for-a-new-generation-of-small-business-owners/
[4] US Small Business Administration. (n.d.). SBA 7(a) loan program. Retrieved from https://www.sba.gov/funding-programs/loans/7a-loan-program/7a-loan-program-overview
[5] Wharton School of the University of Pennsylvania. (n.d.). Entrepreneurship through acquisition. Retrieved from https://www.wharton.upenn.edu/entrepreneurship/programs/entrepreneurship-through-acquisition/
[6] StartUp Britain. (2020). Aspiring Entrepreneurship 2024 Report. Retrieved from https://startupbritain.org/aspiring-entrepreneurship-2024-report/
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