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Music hits out at bank refusal to offer loan

Music Managers Forum and UK Music call on next government to improve access to finance

The Rifles In Concert

The Rifles were refused credit by all four of the main high-street banks. Photograph: Jakubaszek/Getty Images

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 music industry executives.

The next government needs to deal with the refusal of high-street banks to offer credit to music start-ups because this is preventing the industry from accessing state sources of funding, they say.

None of the £1.3bn already made available in the past year under the government's Enterprise Finance Guarantee (EFG), for instance, has gone into music, despite the Department for Business, Innovation and Skills singling out "music composers and own-account artists" as a group worthy of assistance.

Brian Message, co-manager of Radiohead and chairman of the Music Managers Forum, said: "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."

This week UK Music, the industry's umbrella group, 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 the scheme, entrepreneurs first need to persuade a bank to offer them credit; the bank can then use the EFG to guarantee 75% of their loans. But, along with UK Music's chief executive, Feargal Sharkey, Message has made it clear to the government that the music industry is being kept out of the scheme because banks believe it is too risky.

"One bank manager told me: 'If you'd applied for a Domino's Pizza franchise you'd have got the cash straight away,'" he said.

Music contributes at least £5bn annually to the economy, of which £1.3bn comes from export earnings, according to the Department for Culture, Media and Sport. But at a time when the industry should be experimenting with new digital models and finding new acts, access to funding is becoming tighter.

David Joseph, chief executive and chairman of Universal Music UK, said: "Time and again, grassroots companies support the first steps to the top of the charts. 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."

When it was launched just over a year ago, the music industry hoped that the EFG would provide start-up capital to nurture new talent. Message tried a test case, using the East London four-piece the Rifles, a profitable touring band with a following strong enough to pack out venues such as the Roundhouse in London.

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.

So he tried Lloyds, which said that the plan was too risky. 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. Finally, Barclays said the band had insufficient trading history.

Message said: "This year, the Rifles should be out spending that £200,000, making their next album. Instead they are all going to be looking for jobs in a couple of weeks."