Tag Archive | "banks"

Small Businesses to be Offered Alternative Finance

Every year there are thousands of small business owners that are turned down for loans, but a new scheme is looking to offer alternative finance.

It seems the mainstream banks don’t want to lend you money if you’re a small business, freelance professional or contractor.

Recent figures show that over £4 billion worth of loan applications are turned down every year, although it now looks as though there is a solution if you are one of those people who just can’t get a loan for your business.

The new scheme, which is being endorsed by the government, will bring small business owners in contact with alternative financing sources, such as online lenders who specialise in bad credit or peer-to-peer lending companies.

My opinion? I think this is a great idea, and long overdue of course, especially when you consider there are thousands of hard-working freelance and contractor professionals who are no being approved for loans.

The figures show that currently only 3% of small businesses who get turned down for a loan seek out alternative financing, but now, with this new scheme and government backing we should be seeing more of the self employed getting the loans they need.

I’ve always said that I think many of the mainstream banks are way out of touch with reality, and some of the criteria they want small business owners to meet in order to get a loan is simply ridiculous. Hopefully, this new scheme will give people the alternative they need to start going away from banks and towards online options that are more with the times.

Even the Chancellor, Philip Hammond agrees with me, as he recently commented, “A refusal from a bank should not be the end of the road for a small business, and thanks to the finance platforms being launched today, now it won’t be.”

This all comes at a time when some of the more well known banks have been getting a lot of criticism for the way they treat small business owners. Well, maybe the tables are about to be turned? Let’s hope so.

One thing to note is that while many small businesses, freelancers and contractors should find it easier to get a loan, that doesn’t mean anyone can get one.

Let’s not go back to the days where being financed was so easy even a new business with no track record could get thousands of pounds overnight, and then a few months later go bankrupt.

Sensible lending is always the way forward, and small businesses should still have to check boxes if they want to be approved, including having a proven track record of sales and profit, as well as a solid business plan.

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Should banks have a separate accounting regime?

Contractor accountants may be interested to learn that Andrew Haldane has called for a separate accounting regime for UK banks.

Haldane is the executive director for financial stability at the Bank of England. He recently told the ICAEW that the current bank accounting rules do not take enough consideration of the ambiguities associated with assets and liabilities.

A fair accounting system would recognise that balance sheets for banks differ from other organisations due to the uncertainties surrounding the valuation of assets and the mismatched maturity of liabilities.

Banks have a more complex asset portfolio and the risks surrounding the valuation of those assets are completely different than they are for non-financial entities. And it is these differences that support a separate regulatory and resolution regime for banks, he added.

The head of the financial services faculty at the ICAEW, Ian Coke, agreed that changes were needed but warned that providing banks with their own accounting regime would prompt other sectors to demand their own regime as well. Furthermore, it could look as if the banks are attempting to become less transparent at a time when they are already coming under increasing criticism.

He went on to say that Haldane’s proposals for disclosing a range of valuations are complex and could be hard to understand.

In January 2010, Lord Turner called for banks to have a separate accounting regime and the issue has been discussed several times before that. Almost every industry can highlight complexities that are unique to their own particular sector, so would it really be fair to change the rules just for the banks?

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A ringing endorsement from some politician called Dave

I really must think about writing these jottings earlier in the week. I routinely find myself talking about things that have just happened rather than predicting what’s about to happen. Although, of course, that does mean I can be a little more accurate in what I’m saying. Better late than never I suppose…

But this week’s major news in contractor world was PCG’s third National Freelancer Day, which as we all know is held on November 23rd. This is an event that celebrates the role of the freelance worker in today’s economy and is primarily aimed at ensuring the value they bring to the UK is recognised.

The event is going from strength to strength, with ever increasing participation. It was picked up in a wide range of places, including the Twitterverse and a host of freelancer websites. More importantly it not only the mainstream press but we even got a mention from Evan Davies on Radio 4 and a ringing endorsement of the freelance profession from some politician called Dave, who said “This Government recognises the valuable contribution that freelancers make to the economy and, as more and more people choose to join your ranks, you have all our support”. He’ll go far, that lad, you just watch.

So PCG are to be congratulated on a job well done. Again.

Elsewhere though, things are giving off mixed messages. There has been a lot hand-wringing about rate cuts and job losses affecting contractors. Which is quite worrying, with all this fear of double-dips (still think that sounds like an ice cream) until, that is, you look a little more closely.

These cuts are only happening in banking and finance. Other people aren’t seeing cuts in rate – I know I’m not, if a sample of one is useful – and others are actually saying they’ve got a raise in rate. There are plenty of reported contract extensions out there as well. Just not in banking. How odd.

Another point, if you are of a suspicious mind like me, is that all the banks are cutting by the same rate, a precise 10%. Nice round number, of course, but it is just a little odd that they all see the need to make the same cut regardless of how well or how absolutely dreadfully they are faring. One might even think they were working to the same hymn sheet. Surely not: they are, after all, in competition for the best resources and paying a shade more than the competition is one way to secure them.

But hey, these are banks, after all. It’s not like we expect them to understand economics or anything. So it must just be a fluke of timing and cost accountancy.

Ah but, it’s also interesting to note the response of the guys being hit by these cuts. The proportion that react with “That’s it, I’ll go somewhere else” to those whose reaction is “90% of something is better than 100% of nothing so I’m staying” has reversed totally, with the latter group now prevailing. Mostly that’s because the feel there aren’t the jobs out there to be had, which is understandable. And in fact they’re probably right; the vacancies created by the macho “I’m outa here” brigade don’t exist so there is nowhere to go. Rather than a big round robin with the worst performers falling off the bottom, as happened last time around, everyone has stayed on their chairs. And that, if you’re the banks, is actually something of a result; keep the same staff, no retraining needed, and 10% of quite a lot of money to feed into the bonus pot.

OK, so perhaps the banks aren’t all that stupid after all.

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

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Contractors think banks lack common sense over lending

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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Small businesses lose faith in the UK’s banks

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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Would local lending decisions benefit growing contractor accountants?

Following the news last week that the big banks could miss the SME lending targets agree by Project Merlin, the Forum of Private Businesses called for better competition, local bank managers to have lending powers and more investment in regional branches.

The chief executive of the FPB, Phil Orford, said the Forum wants banks to invest and regional services and give local bank managers the power to make lending decisions as they are best placed to understand individual local companies, which could include accountants for contractors. The current over-centralised, tick box mentality must go, he added.

The Project Merlin banks released a joint statement claiming that demand for small business funding has declined. However, the latest survey of small businesses from the Department of Business, Innovation and Skills discovered that over a quarter of SMEs looked for finance last year and just over half of them had difficulties getting funding from the first institution they went to.

Orford went on to say that regardless of the banks’ comments, there is still a pressing need for affordable funding. The main problem is that mainstream lenders are increasingly alienating small businesses. The big banks dominate and this has led to a lack of competition. Although there are a few innovative funding platforms, they are struggling to break into the market.

HSBC has said it is willing to welcome firms with viable propositions. In fact HSBC’s head of small business banking, Huw Morgan, said the bank would like to see more companies asking for funding.

He went on to say that businesses are now feeling more positive about their ability to grow. A lot of firms are scrutinising their customer base to see how they can expand by entering new markets and offering more.

Morgan finished off by saying that the bank will fund firms that have done their research and have a clear business strategy.

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Banks must treat small businesses fairly says Oakeshott

Accountants for contractors and other small business owners might be interested to hear that Lord Oakeshott has accused the banks of treating them unfairly.

The former Lib Dem Treasury spokesman pointed out that there are large discrepancies between the interest rates charged on loans to large organisations and those levied on small businesses. Figures from the Bank of England show that big firms pay an average rate of 1.78% on a £20 million loan and yet a smaller loan of £1 million would attract a rate of around 3.69%.

Lord Oakeshott would like to see the government put immediate pressure on the banks to rectify this situation and show that it is serious about helping small businesses lead the economic recovery.

One bank that it trying to do its bit is Spanish based Santander. Last week, the bank announced that it had secured £150 million from the European Investment Bank so that it can provide loans at discounted rates to firms with less than 250 employees. Funds are available immediately for companies requiring a loan of up to 12.5 million Euros over a minimum period of two years.

Santander has already pledged to increase lending to SMEs by 25% this year. The bank is increasing overall lending by £6.7 billion and £4 billion has been set aside for small and medium sized enterprises.

115,000 SMEs in Europe benefited from funding from the EIB last year and 30 billion Euros have been lent to European SMEs over the last three years, of which 2 billion Euros went to small businesses in the UK.

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Taskforce banks to be monitored by external reviewers

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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Time to make banking faster?

For the last couple of years, SMEs and contractor accountants have had difficulties accessing finance and the problem still isn’t going away, says Ed Moss from the Manufacturing Institute.

Despite the banks assuring us that they are open for business and ready to help, people still don’t trust them.

Could that situation be about to change? The European Commission recently announced the introduction of a European Union Small Business Act. Included in the policies is an action plan intended to improve access to finance for SMEs’, help them enter the venture capital markets and raise awareness of SMEs potential amongst investors.

One measure that might help small business cash flow is the requirement for public sector organisations to settle their debts within 30 days. The public sector has been criticised for a long time for its tardiness in paying suppliers; many of whom are small enterprises who have been struggling to keep afloat since the start of the recession.

Ed Moss also pointed out that banks could help SMEs if they speed up the cheque clearing system. If you pay a cheque into the bank on Monday, you have to wait until Thursday before it clears. In Sweden and Greece, you pay the cheque in at 10:00 and it’s cleared by 12:00 the same day or the bank is fined.

Moss made his comments after the FPB revealed that over 200 entrepreneurs are supporting the Get Britain Trading campaign designed to promote the contribution small enterprises make to the country’s economy.

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Should bank bonuses should reflect lending performance?

Project Merlin, the project launched last year to secure consensus amongst the leading UK banks regarding financial issues including lending to small businesses and bonuses, is likely to lose the support of Spanish banking giant Santander.

It has been reported that Santander is eager to reach a unilateral agreement over lending directly with the Treasury. It is thought that the bank does not consider Project Merlin as relevant to it since it is currently aggressively increasing the amount it lends.

Santander becomes the second bank to leave the Project after Standard Chartered’s decision last November. Like Santander, Standard Chartered believes Project Merlin is not relevant to it.

The question of bonuses was raised in the Commons question time last week as MPS complained that banks were not lending to struggling SMEs.

Conservative MP, Philip Hollobone, told Vince Cable that a businessman claimed to have been ordered by Barclays Bank to pay a yearly fee of £25,000 because of “spurious new audit requirements”. Barclays lied to the man and the chief executive should not be awarded with a bonus, Hollobone said.

In reply, Cable said that it would be helpful if bonuses reflected performance in lending. But that’s exactly why George Osborne and I are discussing ways of ensuring that the UK’s excellent enterprises have access to a proper flow of credit, he added.

The government began talks with the banks on acceptable bonus levels before Christmas but there are increasing concerns that mammoth bonuses are set to return now that the recession is over.

John Denham, the shadow business secretary, accused the coalition of giving in to the banks. He pointed out that SMEs and limited company contractors are still struggling to obtain credit and even if they do get it, it is too expensive. He asked why taxation on banks is being cut when the chief executive of Lloyds is reported to be receiving £2 million after leaving his position.

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We’re all in it together

Amid all the usual and totally predictable debate over the Spending Review, it is perhaps interesting to consider things from the perspective of the freelance contractor. In the long term, any benefits that arise from the review, if it meets its aims, are much the same for everyone. In the short term, the contractor is in a different position to everyone else.

For a start, will he still be in work? That probably doesn’t depend on where he works as much as you might think. While anyone in the Public Sector is rightly feeling nervous, some of the big banks are also shedding jobs at a fair rate, so nothing is guaranteed. The freeze on big contracts by HMG will obviously limit the opportunities within HMG, but also with the prime suppliers and the smaller companies that feed them.

However, it must not be forgotten that work still needs to be done, and if you have to lose a permanent post, you may still be able to fund a short term temporary resource for the duration. So contractors will still be in demand to a greater extent than people looking for permanence.

Equally, perhaps we will see an increase in the number of smaller contracts that avoid the cap altogether. That would almost certainly push up the demand for good contractors. It would also be a good target for the government’s stated aim of giving 25% of work to SMEs, something which so far really has failed to materialize.

Of course, contractors would be a lot more attractive if the clients would only understand that they are not actually more expensive than a permie doing the same job. I’ve had the same argument at my last three clients, where I’ve demonstrated that a contractor getting 350 quid day is actually a lot better value than a permie – or a fixed term contractor – on 35 grand. And since you can send him away at no cost the minute the job is done, he’s probably quite a lot cheaper overall. That also assumes that his work doesn’t actually result in a saving that’s considerably bigger than his fees for doing the work: the old cost vs. value argument is more valid than ever before.

If we could also take out the daisy chain of intermediaries between contractor and end client, there is a lot more to be saved. In my case, the total markup between my day rate and what the ultimate end client is paying for me is around 500%. Agreed a big business will want some confidence that their supplier is capable of delivering what’s needed and covering the risks that arise, but does that assurance really have to carry that level of margin? Is it time that clients started to be made more aware of who actually does a lot of the work on the ground these days, and how much they could save by trimming the middlemen?

At the personal level the tax and allowance changes being made probably won’t affect the average contractor all that much. We have much greater flexibility over how much salary we take, if only to ensure we have funds available to keep on taking an income when the work is drying up. As a result, assuming you’re working at a reasonable level, the tax and benefits changes won’t really do much damage.

So lots of changes, lots of belt tightening for everyone. We may all be in it together, it’s just that some of us aren’t in it quite so deeply.

Alan Watts can found at LinkedIn.
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There’s been a welcome drop in small business insolvencies

The August Insolvency Index from Experian shows that the amount of businesses going under has reached its lowest point in over three years.

The Index dropped to 0.07 and the average financial strength rating increased by 0.27 to 81.06 over the last 12 months.

Contractor accountants will be particularly interested to learn that smaller businesses did very well. Their strength rating stands above the average at 82.22, an increase of 0.9 on the previous year.

The managing principal of pH, one of Experian’s companies said this shows just how quickly business fortunes can change. The present picture is very different from that of six months ago when insolvencies were increasing.

The figures also reveal that things in the North East improved. In June the region had the highest rate of insolvencies but by August the North East shared a rate of just 0.06% with six other regions.

This welcome news for SMEs is all the more surprising when you consider that the banks are still reluctant to lend to small businesses.

On a less positive note, research published on Monday showed that individuals living in towns situated on the coast were more likely to be declared insolvent than their inland counterparts in 2008 and 2009.

Last year in Hull, 51 out of every 10,000 adults were declared insolvent compared to just 20 per 10,000 in London whilst insolvency rates in Blackpool, Plymouth and Eastbourne were not far behind.

Despite more people taking staycations during the recession, coastal towns have never really recovered from the days when they were thriving fishing ports or shipbuilding centres. And a lot of people who live in these towns have to rely on seasonal or part-time employment so their income is more erratic then full-time employees.

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Everyone’s an expert

Another frustrating week in the hunt for the next contract. It’s clear that there is still a fair bit of work out there for the taking. Sadly it’s also clear that there are an awful lot of people out there trying to take it and competition is very strong. But it seems to have had at least one side-effect; you must only apply for a job if that’s the job you’re already doing.

You can accept that if the role is in say Finance, then clearly you do save a lot of issues taking on someone who already works in Finance, since they would know the regulatory and business environment. Actually it turns out an awful lot of openings are in Finance since the only people with the money to spend are the banks. Wonder where they got it all…

Anyway, I digress. Taking someone already in an industry vertical, while frustrating to the outsiders looking in, is quite understandable. However, the market now sees to be taking this to a whole new level which is what causes the frustration: no matter how good you are at what you do, if someone doesn’t want you to do exactly the same thing for them that you’re doing now, then you have a problem.

I’ve talked before about the whole agency candidate-finding process being reduced to a box-ticking exercise in an attempt to get the flood of applications down to manageable levels. This also saves them a lot of money themselves of course, since the bulk of the work can be delegated to fairly junior researchers who don’t actually need to understand the role or the candidates.

So getting a role is now totally dependent on what it says on the CV. And that is where it all starts to go a bit wrong.

If your CV is to stand a chance it has to be a very close match to the original requirement. Sadly, however, with the laziness of the average agent, a lot of the job specification doesn’t make it to the advert; probably takes too long to cut-and-paste it in to Broadbean or whatever they use to set the adverts up. Given a career history like mine that is pretty wide ranging, I then have to work out which bits to highlight in the first page summary on my CV – no agent bothers to read the detailed job history any more – to stand even a vague chance of getting past the first filtering process at the agency, never mind getting passed on to the client. And if the advert misses a key bit of information, then you fail at the first hurdle.

As an example, I put an application in yesterday evening and around midday today I finally got to talk to the agent about the role. Too late! It seems the role was largely about recovering a programme of work that was not delivering and needed a total shake up. “But you didn’t ask for that, and as it happens that’s what three of my last four roles were mostly all about, fixing and successfully delivering broken projects” I pointed out. One of which, incidentally, was worth around £250 million.

“Ah but”, was the reply, “You didn’t state that explicitly so I didn’t pick it up. Sorry, but I’ve already sent in all the CVs I’m allowed to”. End of conversation.

So there in a nutshell is why good people are sat on the bench. This whole market needs a different approach. And that’s something I will talk about next week.

Meanwhile, anyone need an expert is anything?

Alan Watts can found at LinkedIn.
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