What are the advantages of investing in small businesses?

`Small is beautiful' is a sentiment the Conservative Government has embraced with great enthusiasm in Britain when it comes to supporting business. And many would say, not before time, too, since the small business sector in Britain is considerably smaller than in many of our more prosperous and economically more efficient competitors.

Its share of manufacturing employment has risen from 27% in 1993 to 30% in the 2000s. However, this is still a long way behind the German figure (32%), the Japanese (68%) and the Americans (39%).

To encourage more small business (usually defined as companies under 200 staff) in Britain, the Government has developed a range of direct and indirect aid. in 2016 there are many such schemes. The Government has already spent £12 million on advertising to promote some of its schemes; these include the Business Expansion Scheme and the small firms' Loan Guarantee.

Useful as these are to the small businessman, or the potential entrepreneur, you should be wary of any red tape involved in applying for them and the sheer bewildering number of schemes. Another possible deterrent to starting or financing a small business is the recession itself.

Who wants to start or back a business when markets are apparently flat and demand depressed? The answer is, encouragingly, many, many people. From 2000 to 2004, in spite of thousands of business failures, about 140,000 more UK firms started to trade than went out of business.

There are failures, too. A small proportion of those backed under the Loan Guarantee Scheme go to the wall.

While institutions back what they think is a good idea (always hoping for the 100 to 1 return that some of the backers of the original high technology companies in Silicon Valley, California made), the reality can be the £11 million written off in a Norwich Union portfolio of 26 companies worth £14 million.

CCMG - 2013