A new initiative between the National Association of Commercial Finance Brokers and the Institute of Certified Bookkeepers could improve access to finance for small businesses.

The scheme is currently being piloted in Derbyshire, Leicestershire, Lincolnshire and Nottinghamshire.

Garry Carter, the chief executive of the ICB, said the programme brings together bookkeepers and brokers and if the trial is successful, it will be rolled out nationwide. Members of the ICB who devise successful funding proposals for their clients or employers will be rewarded with a share of the commission on the deal.

Carter went on to explain that it has to be established who, particularly in the micro-business sector, is looking for funding. Once that has been established, the emphasis must be on making sure they have credible plans.

Before lenders will consider making funds available, they need to see that a business is properly run and this means providing up-to-date accounts, accurate projections and a SWOT analysis.

A recent study by the NACFB found that there has been a slight improvement in funding recently but it’s still not enough. Accountants and other SMEs still find it difficult to access the funds they need in order to expand.

Businesses have been looking for better ways to borrow and the number using invoice finance has increased for the fourth consecutive year. There has also been an increase of 3.5% in the number of firms using asset finance, however asset finance brokers are now struggling to find funders.

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Project Merlin was supposed to get the major banks lending more money to small businesses, but so far it is falling short of its target.

Despite being behind target at the end of Q2, gross lending to SMEs actually decreased in the third quarter; down from £20.5 billion to £18.8 billion.

In February, the Big 5 banks promised to lend £190 billion to businesses this year. £76 billion was to go to SMEs with a turnover of less than £25 million.

Although the banks should meet the headline commitment of £190 billion, they have only lent £56.1 billion to small businesses – 0.9 billion short of the nine-month target. According to the banks, businesses simply don’t have the appetite for loans.

Business groups are now concerned that the lack of competition in the banking sector is having an adverse effect on the cost of credit.

John Walker, the FSB’s national chairman, explained that the big five banks serve around 85% of the small business community. As well as more competition, small businesses must be able to access new lines of credit otherwise they will not be able to help the economic recovery.

Andrew Haldane, the executive director of financial stability at the Bank of England, has called for a relaxation of the rules surrounding lending to small businesses.

He says lending should not be so capital-intensive, and the calculations for risk weightings should be relaxed. The current system of weighting assigns higher levels of risk during a crisis and this compounds the credit shortage. Banks should be able to free up credit from their capital reserves, he added.

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Contractors may have already encountered difficulties trying to obtain finance from their bank.

Shawbrook Bank has now published research findings that confirm that the leading UK banks are making it too hard for small businesses to get a loan.

45% of SMEs say that the level of bureaucracy is too high and a mere 6% think the process they have to go through when they apply for a loan is transparent. Furthermore, 89% of respondents said the banks lacked common sense when it comes to lending.

The CEO of Shawbrook Bank, Owen Woodley, said smaller forms should be receiving as much assistance as they need to help them grow and become successful. It’s a matter of grave concern that so many of them feel the loan application system is unclear and obstructive.

It is vital for a small business to be able to access the right finance when they need it if they are to expand and in order to achieve that we must have a lending process that is straightforward and efficient.

Shawbrook recently promised that it would make £250 million available to UK small enterprises next year.

Another problem facing small businesses is that credit agencies appear to have very different ways of assessing credit worthiness.

A recent study of the credit reports of private firms discovered a 150% average variation rate in the credit limits recommended by three high profile agencies. Although agencies do use different criteria to base their scores on, the size of the discrepancies is causing concern.

Phil McCabe from the FPB pointed out that a flawed credit report could mean the difference between success and failure for an entrepreneur.

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Syscap, the independent finance provider, has said that lending under the Enterprise Finance Guarantee scheme fell by 42% over a 12 month period.

In the year ending June 2011, only £433 million was lent under the EFG scheme, compared to £742 million in the year to June 2010. Between April and June this year, just £93.1 million was offered to SMEs and accountants for contractors under the scheme. In the comparable quarter of 2009, £254.9 million worth of loans were offered.

The government has allocated £600 million for additional lending in the year ending 31 March 2012 but if the current trend continues, it is unlikely to reach that target.

One problem appears to be that the EFG scheme does not fund SMEs through lease financing. Leasing is crucial to many small businesses as it allows them to maintain a healthy cash flow, spread the cost of assets and is tax deductible. However, the EFG does allow invoice financing, which is a form of asset finance.

Philip White, Syscap’s chief executive, said the EFG scheme urgently needs to increase lending if we are going to get the economy back on track and create jobs. But it looks highly unlikely that the scheme will lend all of the £600 million it has available if the first quarter lending figures are anything to go by.

Meanwhile, the FSB has welcomed the Independent Commission on Banking’s recommendations for the reform of the sector and is now calling on the government to implement the recommendations before the end of this Parliament.

The ICB has proposed that retail banking operations are ring fenced from the more risky investment banking activities. 89% of FSB members think that the UK banking system needs to be reformed. 52% believe it should happen immediately, whilst 45% say reform should take place by the end of this Parliament.

John Walker, the national chairman of the FSB, said the ICB’s recommendations could make the banking sector more secure but the government must resist the temptation to water them down.

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Small and medium sized businesses are increasingly turning to credit cards, and asking family and friends for loans, to keep their firm afloat.

Hilton-Baird Financial Solutions conducts an SME Trends Index survey every six months and its latest research shows that 42% of respondents admitted to using credit cards to bolster their company finances.

Bank overdrafts are still the most popular way of obtaining external finance, with 44% of SMEs using this option in the last six months, whilst 20% asked family and friends for a loan to tide them over.

Asset finance was the option of choice of 25% of the survey’s respondents, and maybe surprisingly only 21% used invoice finance.

Just over a third of all respondents said January’s VAT increase will put a further strain on their cash flow, but this jumped to 45% of those who use credit cards and loans from people close to them.

Evette Orams, the MD of Hilton-Baird, said it was amazing to discover so many SMEs using high risk means of finance in order to get a quick injection of cash. People don’t look to the long-term impact of turning to family and friends or using credit cards.

Meanwhile, it appears that the high street banks are still falling short of their Project Merlin lending targets. In the first quarter, the banks should have lent £19 billion but they fell well short of that at only £16.8 billion. Early indications show that they will have lent around £37 billion in the first half year, compared to a £38 billion target.

Lloyds Banking Group has said they will beat their agreed targets and Barclays and Santander seem to be on course to meet theirs. But HSBC and RBS are failing to meet their commitments on small business lending.

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Britain’s sole traders and contractor accountants have lost faith in the country’s banking system, according to the Forum of Private Business.

The FPB is now calling on the government to introduce new measures to restore smaller enterprises’ trust in banks.

The British Bankers’ Association recently published research showing that about 670,000 UK firms have needed funding in the past 12 months but did not submit an application for it. 18% of companies believe they will require finance within the next three months but say they will not be able to apply unless there is a significant improvement in the country’s economic conditions.

The FPB’s senior policy adviser, Alex Jackman, pointed out that the report showed that small businesses have a crisis of confidence when it comes to the banking system in the UK. As well as practical measures to restore confidence, innovative funders must also be allowed to compete in the current bank dominated finance market.

The Bank of England published its Trends in Lending report for May recently and it showed a record decline in the number of approved loans for smaller enterprises. It also stated that the average interest rate payable on small business loans is 4.66%. Two years ago, the rate was 4.29%.

John Walker, the national chairman of the FSB, said that entrepreneurs and limited company contractors should be able to take advantage of healthy competition from the UK’s banks. He pointed out that the 4.8 million small businesses in the UK are the ones that will create jobs and drive the economic recovery, and yet they are getting a worse deal than their larger counterparts.

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Contractor accountants may be interested to learn that Vince Cable, the business secretary, has once again called on the UK’s high street banks to increase lending to small businesses.

Under the terms of the recently signed Project Merlin agreement, the UK’s major banks must lend £19 billion to small businesses each quarter. However, in the last three monthly period, only £16.8 billion was lent to small firms and this led to Cable saying the banks must put more effort into small business lending.

He went on to say that if the banks don’t stick to their agreement, the government may rescind its promise and change its tax regime, which currently favours the banking sector.

Small businesses who fail to get loans from the major banks may want to consider approaching the Metro Bank.

The newest high street banking player said that business banking managers are available to 43% of larger organisations, but only 16% of micro SMEs. The bank also points out that 29% of larger firms are likely to be accepted for a loan compared to just 2% of micro firms.

The managing director of business and commercial banking at Metro Bank, Mark Price, said it was clear that the banks are letting down small businesses. He went on to stress that all businesses, irrespective of size, are welcomed at Metro Bank.

Price also explained that the Bank focuses on local community based banking which means lending decisions are made by local managers who understand the relationship individual businesses have with the Bank.

Metro Bank recently opened its eighth branch and within the next ten years it hopes to have more than 200 branches in Greater London.

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There are growing concerns amongst finance professionals that the government’s plans to exempt small businesses from filing accounts with Companies House might backfire.

Under new proposals, firms with an annual turnover less than £88,000 will no longer need to file statutory accounts, but experts believe this could make it harder for them to get access to trade credit. The Institute of Credit Management’s chief executive, Philip King, said suppliers rely on financial information when deciding whether or not to extend credit terms. If micro-firms do not need to file accounts, suppliers are unlikely to give them credit.

He thinks that businesses should provide more information rather than less and that rather than encouraging growth, the government’s new proposals will restrict it.

Graydon, the credit reference agency, recently conducted research that found that only 8% of businesses would extend credit if they did not have access to a company’s financial information. Martin Williams from Graydon said that most suppliers admitted they would not grant credit or finance to a small business unless its financial information was available.

He went on to explain that this is not the solution to reducing the red tape problem and there is a danger that it will actually increase the administrative burden on SMEs if they have to answer financial questions directly from trade suppliers.

A lot of entrepreneurs were no doubt relieved when the EU agreed to exempt micro-businesses from filing some reports with Companies House. Ed Davey, the business minister, said this was a significant step forward in the battle to reduce red tape. However, businesses would still have to file simplified information at the government’s discretion.

It has not been decided whether the UK coalition will actually adopt the new rules and in the meantime, financial experts hope they can convince the government that they will do more harm than good.

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Recent research by KPMG discovered that the typical white collar fraud is carried out by senior male finance staff, and that it takes longer to detect.

KPMG based its findings on 348 real fraud investigations, across 69 countries, conducted by its member firms.

Most likely to participate in fraud are men in the 36 to 45 age group holding senior management roles in finance. This group accounted for 41% of cases, whilst the number of frauds committed by members of the board has increased to 18% from 11% in 2007.

90% of frauds are targeted against the perpetrator’s employer and 33% of the fraudsters will have been at the company for longer than 10 years. 61% work in collusion with another fraudster, almost double the 32% of collaborators in 2007.

The main motive for fraud is personal gain, followed by pressures to meet budget and profit targets. The survey also noted that 74% of fraud cases exploited weak internal controls.

The head of KPMG’s investigations network in Europe, Middle East and Africa, Richard Powell, said that a lot of the frauds he has investigated in the last few years have been detected via whistle blowing reports. Very few are discovered by management or auditors.

In 2007, it took an average 2.9 years to detect a fraud, now it takes 3.4 years. Companies also fail to act when they see warning signs, the report said. In 2011, 56% of cases were preceded by a red flag, compared to 45% in 2007. Only 6% of these red flag cases are acted upon immediately, compared to almost one in four of the 2007 cases.

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The Forum of Private Business has claimed that small businesses in the UK are still having difficulties accessing finance. In fact, the situation has got so bad that it’s hard for them to reach a negotiating point with the major banks.

FPB spokesman, Phil McCabe, said there is a breakdown in communication in the way lenders judge risk. In the not too distant past, decision making would be done by the local bank manager. He would normally know business customers and therefore be in an ideal position to decide where a loan was a risk worth taking.

Now that decision making has been largely centralised, the banks are less likely to know about their small customers and the local business environment. The Forum would like to see improved local decision making powers and a better local presence, he went on to say.

However, small business owners also need to up their game and produce better, more comprehensive financial information if they want the banks to say yes, he concluded.

The problem is not just in England either. The FSB has pointed out that lending in Scotland is dominated by two large banks.

The East Scotland chairman of the FSB, Michael Dixon, said there had been a huge issue over small business finance in the last three years, due mainly to the domination of RBS and the Lloyds Banking Group.

At a recent hustings event, Dixon asked party leaders what measures they would take to help firms get the finance they require to help the economy grow.

Tavish Scott, the Scottish Lib Dem leader, said his party would ensure there was a business-led, regional development bank structure across the country and although it would still be commercial lending, it would make sure finance was available.

Alex Salmond, the SNP leader was quick to criticise this proposal saying you can’t solve the problem by setting up a new bank to replace the existing ones. The answer is to make sure the banking market is competitive.

The Scottish people are voting for a new parliament this Thursday and Alex Salmond’s SNP party is currently ahead in the polls. It will be interesting to see how he makes the market competitive if he gets re-elected and will the English government follow his lead?

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Small businesses and accountants for contractors denied funding from one of the big 5 banks now have the opportunity to get their application reviewed by another person within the bank under the new loan appeal system launched by the Business Finance Taskforce last week.

This individual will not have taken part in the initial decision making process. The big banks also need to provide unsuccessful applicants with information on alternative ways to obtain finance, or put them in contact with a business mentor.

Professor Russel Griggs has been appointed as the external independent reviewer and he will report each year on the effectiveness of the scheme.

The FPB believes this is a welcome move and if it is implemented correctly it will help restore a measure of trust in bank lending. However, the Forum stresses that business owners must take advantage of the appeals process if they think they have been treated unfairly. Even if they think they will still be refused, lodging an appeal will create accurate data on how effective the system actually is.

Phil Orford, the FPB chief executive, pointed out that the Better Business Finance campaign has ensured that the major banks now have to spell out the standards businesses can expect to receive, and SMEs can obtain online support and access to an appeals process if they feel lenders are not living up to the standards.

Brian Mairs from the British Bankers Association explained that any company turning over up to £25 million can use the appeals process if it feels it has received unfair treatment over a loan application. The appeal must be launched within 30 days. The BBA also pointed out that the initiative is not designed to increase the amount of money lent to small businesses, rather to ensure that lending decisions are correct.

The FSB has given a cautious welcome to the new system. Any measures that increase transparency and fairness have to be a good thing, a spokesman for the FSB commented. However, the Federation is disappointed that the system is not open to all businesses regardless of size or number of staff employed.

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External reviewers have been appointed by the Business Finance Taskforce to ensure the Big 5 British banks stick to their promise of a ‘fair, prompt and transparent’ appeals process for companies that are refused loans.

The review team will be led by Professor Russel Griggs and supported by Promontory, a consultancy firm. HM Treasury and the BIS Department have backed the selections.

Companies can see details of the treatment they should receive from the Taskforce banks by checking the website or the site of their own bank.

The chief executive of the BBA, Angela Knight, explained that last October the Business Finance Taskforce agreed to 17 initiatives aimed at supporting UK SMEs. One of these was to set up a monitored process for appeals. The Taskforce banks have agreed a common set of principles for operating individual appeals and these should help businesses receive the support they need to grow.

Phil Orford, the CEO of the FPB, said business owners should not let the banks off the hook; rather they should lodge an appeal as soon as possible if they are denied funding. Otherwise the financial institutions will be able to say that SMEs are satisfied with lending decisions.

Meanwhile, Barclays Bank credit card division has recently acquired the credit card portfolio of MBNA Europe in a move which will expose the high street bank to around £130 million of outstanding debts.

Bob Diamond, the new chief executive of Barclays, has decided that the bank should increase its appetite for risk if it is to meet its profitability targets for the next three years.

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