Small Talk: Long after the news cameras and politicians have moved on from the flood-hit areas many small businesses will still need help

For now, small businesses affected by flooding are getting plenty of help. A £10m scheme unveiled by the Government last week follows previous announcements of official support, ranging from business rates relief to extensions of the deadlines that normally apply for filing company accounts.

The private sector is doing its bit too, with companies such as Regus, Citrix and Vodafone offering practical support to help small firms keep trading, and the banks pitching in with more relaxed lending criteria (see greatbusinessexchange.co.uk for a listing of all offers of assistance).

But what happens when the story moves on? In three months’ time, the victims of the latest bout of adverse weather will be mostly forgotten. While small businesses’ carpets may have dried out by then, many will still be in desperate need of help – and find it getting harder to obtain.

The Association of British Insurers says that many as four in five small firms forced to cease trading for a while because of a problem such as flooding subsequently go out of business within 18 months.

So why are the ABI’s members so reluctant to offer these vulnerable policyholders better protection?

Small businesses are excluded from the Flood Re scheme negotiated last year between the insurance sector and the Government, which from 2015 will use small subsidies on everybody’s buildings insurance policies to make it economic to continue offering affordable cover to households located in flood-prone locations.

As a result, from next year, many small businesses will see their insurance premiums soar, or be required to accept huge policy excesses, or both. Many will no longer be able to afford insurance against flooding, or find that the insurance available to them is not worth having.

Insurers insist that small businesses will not face the same problems as the households that Flood Re is designed to protect, particularly if they use an insurance broker to source their cover. Insurance brokers disagree. The British Insurance Brokers Association has called for Flood Re to be extended to small businesses – so too have numerous small business groups.

When ministers negotiated the terms of Flood Re with insurers last year, they didn’t push for small businesses to be included because they feared this would mean other policyholders paying larger subsidies to fund the scheme. And while ministers are now beginning to realise this might have been short-sighted, the insurance industry is not prepared to reopen negotiations.

This isn’t an issue that affects only small numbers of businesses. A poll conducted last year by the Federation of Small Businesses – even before the latest floods – found that one in five of its members had been affected by flooding. Many complained about expensive insurance and the difficulty of obtaining adequate cover.

If there is no prospect of solving that problem – and insurers look set to remain obstinate – what else might be done? Well, small businesses, just like everyone else, will benefit from investment in flood defences and weather-resistant infrastructure, which is just one more reason why spending on these priorities makes good economic sense.

But there may also be some useful direct help it would be valuable to offer – for example, grants or interest free loans for businesses that want to invest in their own flood defence systems. Another possibility might be financial assistance for businesses looking to relocate from locations vulnerable to floods.

The need for this sort of practical help will continue long after the rolling news channels have taken their cameras elsewhere.

Funding Circle, the crowdfunding platform that provides loans to small businesses, has won another £40m of government cash to distribute. The money is being provided through the new Business Bank from next month, and follows a £20m funding round announced by the Government a year ago – that cash was invested within 10 months.

Crowdfunding provides small businesses with an alternative to the banks. Debt-based services such as Funding Circle will be regulated by the Financial Conduct Authority from April and there is hope that investors on the sites will soon be allowed to hold the loans they make within tax-free Individual Savings Accounts.

Samir Desai, chief executive of Funding Circle, argues that the sector is no longer a last resort for small businesses turned down by the banks. “Peer-to-peer lending has proven to be the preferred way for many businesses to borrow,” he said.

The Alternative Investment Market (Aim) continues to win its fair share of the buoyant IPO market. Having raised £164m in new issues during January, according to figures from the broker Allenby Capital, February and March are looking good too – not least thanks to two British companies that have unveiled details of new flotations.

First up is Xeros, which is commercialising its research work on polymers at the University of Leeds by applying it to cleaning products, initially for the commercial laundry market, where it is installing machines in the UK, the US and across Europe. Xeros is seeking up to £40m from its IPO, and hopes to list on Aim next month.

It will be joined there by DX Group, whose IPO placing round has picked up £200m – £30m more than the business originally sought. The float represents the most successful fund-raising on Aim since 2006. DX started out operating secure mail delivery services in industries such as legal and accountancy, but has expanded rapidly in recent years and now seeks to challenge operators such as Royal Mail.

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