Banks Say No To Music

The future of the British music industry is being jeopardised by the refusal of banks to back the next generation of artists, labels and entrepreneurs, according to The Guardian.

Several music industry executives believe that whoever is in power after the May 6 election needs to deal with the refusal of High Street banks to offer credit to music startups.

The current government has provided £1.3 billion worth of state funding under the Enterprise Finance Guarantee scheme in the past year, although none has been used to help fund music businesses.

When the funding was originally announced, the Department for Business, Innovation and Skills singled out “music composers and own-account artists” as one of the groups worthy of assistance.

“Whoever comes into power must recognise that we have naked discrimination against music and we need to do something about it: either fix the mechanism that we already have or create something new,” said Brian Message, co-manager of Radiohead and chairman of the Music Managers Forum.

Industry umbrella group UK Music has also called for the government to work in partnership with labels and managers. Its Liberating Creativity manifesto made improving access to finance a priority over the next decade.

Working with UK Music, Message has been investigating the EFG, which provides loan guarantees for small and medium-sized businesses that have little or no security with which to raise their own funds.

To access money from the EFG scheme, entrepreneurs first need to persuade a bank to offer them credit. The bank can then use the EFG to guarantee 75 percent of their loans.

However, Message and UK Music chief exec Feargal Sharkey believe the music industry is being kept out of the scheme because banks believe the business is too risky.

Message tried a test case using East London four-piece The Rifles, a profitable touring band with a following strong enough to pack out 1,000-capacity venues.

He approached his own bank, Royal Bank of Scotland, for £200,000 to fund the next album under the assumption that the EFG would guarantee three-quarters of the loan.

The bank declined, even when Message said that he would guarantee the remaining £50,000 of its exposure with his own money.

He tried Lloyds, which said that the plan was too risky, while HSBC reckoned that the eligibility criteria for the EFG meant that it could be used only to support the trading of a business within the UK. As the Rifles were hoping to break into overseas markets, the business plan was considered unacceptable. Barclays said the band had insufficient trading history.

Music contributes at least £5 billion per year to the UK economy. Figures supplied by the Department for Culture, Media and Sport show £1.3 billion comes from export earnings.

Message reckons The Rifles need to be spending about £200,000 on making and promoting a new album, although at the moment it looks more likely that the individual members will soon be looking for day jobs.

Universal Music UK chairman and chief exec David Joseph told the Guardian most acts have to find their own ways of finding capital.

“To take an example from our own roster, Mumford & Sons’ manager used his own money to start developing the band’s career before he brought them to us. Now they are one of the most exciting British breakthrough artists of the year,” he explained.