British banks, so far, have failed SMEs by not providing essential long-term finance. However, the relationship is two-way and SMEs’ behaviour is also worthy of examination. The discussion in this chapter seeks to establish whether factors emanating from the culture, perspective, and business behaviour of British SMEs may themselves make a significant contribution to explaining the lack of long-term investment funding. This chapter will attempt, therefore, to determine how far the culture of British SMEs may, in part, explain the alleged failure of British banking to provide long-term investment for SMEs in the UK over the past almost 90 years, since the Macmillan Committee Report.

It will be useful to compare the British SME sector with the German SME sector, and how the success of the Mittelstand in Germany appears to have been based on their ready access to, and involvement with, the German banking system. Although there are some similarities between the UK and the United States, such as both countries subscribe to a political economy which may be described as a form of liberal market economy with a strong emphasis on competitive markets, there, however, the similarity ends. The UK does not subscribe to what has been previously termed, in connection with the period of rapid industrialization in the US, the Schumpeterian notion of “creative destruction”, and the acceptance of potentially short-lived firm survival.

The British SME sector

Before proceeding it will be worth recalling, briefly, the cultural attitudes of UK SMEs to seeking finance in the early years of the industrial revolution. The entrepreneurs’ requirement then was for short-term risk capital. Their intentions were to test new technologies, processes as well as products, to see whether and how they would work, usually in a small workshop setting. For this activity they did not need long-lived, fixed capital, and could manage with working capital. The early entrepreneurs were able to source risk capital from personal and family sources or from friendly merchants and landowners, in an age that was becoming interested in science and technology. It is possible that this habit of not looking for outside bank financing became ingrained and transferred as a cultural norm into the subsequent era of “industrialization”, which required investment in fixed capital and a longer-term corporate perspective among owners and managers.