Tag Archive | "business loans"

Small firms see better funding in September, figures say

So here’s something that will shock you: while it’s usually like pulling teeth to get funding for a small firm, September was actually a rather good month.

I know – it sounds preposterous, doesn’t it? Banks and building societies often treat self-employed Brits, like freelancers and small business owners, as if they had the plague when it comes to access to finance. Still, it turns out that all the entrepreneurs and contractors out there in the UK actually saw some positive movement on this in September; in fact, the National Association of Commercial Finance Brokers said that small-sized enterprise in the UK got a total of £1.25 billion in approved lending for the month. That’s 55 per cent higher than it was in 2013!

Of course this doesn’t necessarily mean that High Street has come to its senses. Sure, there was some lending from traditional sources, and new lenders like Metro Bank have been trying to break the Big Four’s stranglehold on financial services, but quite a bit of funding activity came from non-traditional sources. Crowdfunding initiatives and peer-to-peer lending was a major player in September’s figures, according to the NACFB.

This is splendid, brilliant news, especially for anyone who’s looking to springboard their own new business. Self-employed Brits have been foundering for several years when it comes to financial services, and with the figures jumping so high in just a year’s time it gives industry analysts hope that the trend will continue. I know I’m certainly hoping that October’s figures will be high as well.

Of course lending availability and need ebbs and flows throughout the year. In 2012, September lending was a relatively high £750 million, while in May of this year figures were a rather anaemic £250 million. Whether this is an issue of contract workers and self-employed Brits not needing as much funding during these months or banks and building societies telling small business owners to jog on is of course unknown.

If you ask me, I’m inclined to believe that it’s the latter more than the former. High Street has earned a much-deserved reputation for sitting on their capital in fear of bank runs or another credit crisis, so they’ve been tending to only provide access to finance for the surest of sure bets, even as the Government tries programme after programme, scheme after scheme, to encourage lending. Finally it seems either banks have changed their minds or there’s simply enough alternative lenders out there to finally satisfy the needs of self-employed Brits everywhere.


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Where do contractor accountants find finance?

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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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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Mixed news for SME lending

Aldermore, the specialist asset finance company, increased its lending to SMEs by 206% in the last year. At the end of last year, the firm had £410.2 million of outstanding loans to small and medium sized enterprises.

Aldermore’s CEO, Philip Monks, said this outstanding performance showed the strong progress the bank has made towards obtaining a significant market position. He went on to say that he was extremely proud that his team had got the right formula for customers, staff and shareholders.

Originally firms came to Aldermore because they couldn’t raise capital from their banks but now they know there is a better alternative to the indifferent service level they obtain from the large banks.

SMEs have been complaining for many years that the business banking market is not conducive to small firms and if Aldermore has been able to expand their business so quickly, it would suggest that the complaint was justified.

Aldermore launched after the credit crunch and specifically focuses on lending to SMEs and homeowners.
Small businesses may well feel that it’s just as well that Aldermore have entered the lending marketplace.

On the other hand, Barclays has now announced that it will no longer provide asset finance to companies with less than £5 million turnover per year. The bank made the announcement within a week of the Project Merlin agreement that was meant to secure additional funding for SMEs.

As part of the Project Merlin deal, the big banks agreed to make an extra £190 billion available to companies this year, £76 billion of which should be for SMEs.

Barclays decision means that it will no longer lend to small businesses and limited company contractors, and if they want to buy computers, machinery and vehicles it will hamper those companies’ ability to create jobs.

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Will contractor accountants soon be helping more start ups?

The work and pensions secretary, Iain Duncan Smith, plans to help Britons long-term unemployed start up their own business.

Smith told the Conservative Party conference that financial backing and support would be available to people who have been out of work for over 6 months.

Up to £2,000 in financial support would be made available through the New Enterprise Allowance and the government would arrange mentoring to help new entrants and contractors to the business world.

The government hopes to create 10,000 new small businesses and limited companies through this initiative and is part of a radical shake up of the entire welfare system.

Included in the proposals is a move that will see benefits streamlined so that recipients receive just a single payment.

It is believed that the high street banks will shortly announce a new fund dedicated to lending to SMEs. Although details are yet to be finalised, each institution would be injecting tens of millions of pounds into the fund. And to give small businesses a better chance of having their loan approved, a mentoring programme to advise on their capital structure will also be set up.

Any move to encourage the banks to lend more will no doubt be greatly appreciated by SMEs. A new report shows that 18% of small business owners are turning to alternative funding sources in order to stay afloat. 10% of business owners have turned to family and friends, 7% are using their credit cards for business finance and 7% have turned to loan companies for help.

One third of SMEs have had to make cuts in the workplace with 47% reducing their use of utilities, 38% cutting expenditure on staff refreshments and the same percentage cutting back on travel expenses.

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More business funding is needed, but where can we get it?

Vince Cable, the business secretary, says that banks are making it harder for small firms to apply for loans despite claims from the semi-nationalised banks that they approve at least 80% of loan applications.

Stephen Pegge, the chairman of the small business panel at the British Bankers’ Association, claims other business bank accounts are also matching this rate.

Mr Cable said these claims are misleading and cited proof from business industry bodies such as the Institute of Directors that shows that the banks are not meeting demand.

The IoD recently published research which found that around 33% of UK businesses had been refused banks loans. However, there has been some improvement as similar research conducted last year found that 57% of businesses were refused finance.

The BBA has also released figures showing that net lending by the banks was at an all time low in May. £500m was lent to SMEs but the banks collected more than that in repaid debts and withdrawn overdrafts.

A consultation is to be launched this week to discuss business finance and it will consider whether there would be any benefit to be gained by forcing new targets on the two semi-nationalised banks; RBS and Lloyds. Cable thinks that mandatory action forcing the two banks to make more finance available could be an attractive option.

However, the Labour government was unable to force Lloyds and RBS to meet lending targets to limited company contractors even though they were legally binding and a spokesman from the Treasury said that the coalition was still considering whether a new target based option would be effective.

The consultation will also look at other business financing alternatives. The coalition has already said that using equity finance could be one possible option. Currently only between 1 and 2% of SMEs use this option and the financial secretary to the Treasury, Mark Hoban, says that the majority of small businesses are missing an opportunity. To encourage more freelancers and SMEs to take up the option, Vince Cable also suggested recreating 3i, a private equity organisation which provided equity for small, expanding businesses.

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Adjudicator to highlight poor small business loan decisions

The government intends to set up an independent body so that small companies can appeal against banks that refuse to grant them a loan.

In last week’s budget, the Chancellor said that Lloyds and RBS would be forced to provide an additional £94bn of new lending and that half of that would go to SMEs.

The Credit Adjudication Service will examine lending decisions and decide whether or not they were made fairly. This should come as a big help to recruiters, umbrella companies, and contractor accountants who currently cannot challenge the decisions made by the banks.

The new service would fast-track complaints and its judgements will be legally enforceable. Mr. Darling has set aside £5 million to pay for the scheme in 2010-11 but there has been no provision made for funding it in the following two years.

The banks however aren’t too happy at the prospect of the new service. They believe that it is a bureaucratic nuisance and removes the right of companies to decide who they wish to conduct business with.

SMEs on the other hand welcome the move especially as around 20% of them are dissatisfied each year with lending decisions made by banks.

Alistair Darling also expects to see more competition between business bank accounts that will benefit SMEs as both Lloyds and RBS had to sell some of their high-street branches thus allowing other financial providers to step in.

The Chancellor has also guaranteed that everybody in the UK will be able to open a basic bank account. Up to a million people will be able to benefit from this move.

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