Tag Archive | "credit"

All hail the EU startups taking on the banks!

Twenty twelve was an eventful year on the world stage for more reasons that any of us can remember, but in startup land it may well be remembered as the year the financial sector was finally taken to task.

All across Europe tech startups set about loosening the banks’ grip on the financial services market, and largely came through in fine form. Just about any financial service you care to name is now being done better, cheaper and faster by a young technology company somewhere in the Eurozone than in the City.

These startups are all responding to a public demand for better access to financial services, and have been lucky enough to have the public zeitgeist on their side. Trust in existing banks has fallen to previous unplumbed depths in the last year – a recent study found that only 2% of business owners would approach their Bank Manager for advice.

Peer-to-peer lending was the breakthrough service of the last year, with a clutch of VC-funded companies all vying for an increasingly vibrant market.

Despite signs of recovery in some European economies in 2012, banks remained cagey about offering credit. Small business lending in the UK fell to it’s lowest level since 2006 and in response SMEs went looking for funds elsewhere. Lending marketplaces like Funding CircleSeedrs and Rate Setter were all too happy to oblige – and with returns on investment greater than those offered by banks, individuals who decided to lend through them did well too. The sector was further bolstered by the overdue arrival of crowdfunding giant Kickstarter.

Elsewhere foreign currency exchange – traditionally a money-spinner for the banks – saw the beginnings of meaningful disruption through services like TransferWise and Currency Cloud, both of whom offer currency transfers at a fraction of the banks’ prices through clever collective consumption methods.

Payment processing got a shot in the arm from GoCardless, who are re-engineering Direct Debits to be useful for things other than paying bills, and iZettle, who offer a Eurocentric take on Square’s plug-and-play smartphone card reader.

The one problem common amongst all these firms is that the big name banks are still their platform. Money lent, transferred or processed still moves from one High Street bank account to another. Finnish startup Holvi looks to be taking tentative steps towards building a viable alternative, and in the US Simple is rethinking personal banking – although both still rely on institutional banks to underpin their services to one degree or another.

While many of these inventive companies are tinkering with auxiliary financial services, none have yet entered the fray headlong in a bid to oust the HSBCs and Deutsche Banks of the world as the main repositories for our money.

Will this happen in 2013? In the current financial climate it seems unlikely. However, with their profits being squeezed by all these young pretenders, it won’t be long before the big banks have to adapt or suffer the consequences.

Jon Norris is a freelance writer, and Web Editor at online accountancy firm Crunch.

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Fancy a top job with HMRC? It’s on the lookout for experts!

Senior tax specialists are escaping HMRC at an alarming rate and by the end of the summer, 80% of its top team will have left.

Three out of the five commissioners are due to retire shortly and the director-general for benefits and credit, Steve Lamey, is moving to the private sector. The Revenue also needs to find a new chairman to replace Mike Clasper. Lin Homer, the chief executive at the Revenue, is a relative newcomer to the department having only taken up her position a few months ago.

Simon Bowles, the chief finance officer, currently appears to be the only commissioner who is not about to jump ship.

The ACCA’s head of taxation, Chas Roy-Chowdhury, said it was unfortunate that all the commissioners were departing at the same time, but this could be a good opportunity to bring in fresh ideas from people in the lower echelons. He said he had spoken to Homer and was confident that she could beef up a new team and deliver the department’s goals.

A spokesperson for the Revenue said it’s vital for HMRC to get the right people in the right roles. Internal and external candidates are welcome to apply and the recruitment process will be fair and open. Applicants for these senior roles will need a wide range of experience and tax will be a key element.

The exodus could turn out to be good for HMRC; a new broom sweeps clean and all that. But will the department be able to get the right people in place quickly enough to prevent chaos?

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SME lending still short of Project Merlin target

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 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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High street banks are frightening off small businesses

A lot of small businesses and accountants for contractors are too scared to approach their bank for a loan and instead they are hoarding money that could be put to use growing their business, according to a new report from the Bank of England.

The BoE study found that small firms are worried in case their bank cuts their overdraft facility and are sitting on reserves. Entrepreneurs worry that asking for a loan will mean their existing borrowings will be reviewed and their overdraft may be withdrawn. Experts said the results show that small companies are still suffering financial nightmares more than four years after the start of the recession.

Lending is not so much of an issue for larger organisations, but start-ups and small businesses are still finding it difficult to access credit. And the study shows that if they manage to secure a loan they face elevated fees and a long drawn out application process.

Another survey, this time from Syscap, found that 75% of SMEs think the lending margins charged on loans are too high.

Only 8% of the respondents to the Syscap survey said it was now easier for them to access a bank loan. 33% said the situation had got worse over the last year and another 12% said it had worsened in the last three months.

50% of small business owners use credit cards, personal loans or savings to fund their business, rather than approaching their bank for help. Of the firms which have asked for finance from their bank in the last 12 months, more than 33% were refused first time around.

The high street banks say they accept around 80% of applications from SMEs but this figure does not take into consideration the large amount that are put off applying.

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Should online accountants encourage micro-firms to still file accounts?

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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Contractor accountants need a financial contingency plan

Contractor accountants and other professional freelancers must be prepared for financial changes, especially in these times of economic uncertainty.

The MD of the Debt Advice Foundation, David Rodger, said that everybody should have a Plan B, even if they believe their job is secure.

Rodger pointed out that redundancy might have a massive financial impact on a person’s household budget so having the foresight to plan ahead can lessen the chance of future difficulties.

This is simple to do, he says. Set yourself a realistic budget so that you do not overstretch your finances or spend large amounts on credit and keep a “rainy day” fund to tide you over if you have the misfortune to lose your job.

Contractor accountants working through umbrella companies might find that they are in and out of work due to the nature of freelancing. It is therefore vital for them to have a reserve cash fund in case work dries up for several weeks at a time.

The threat of more job cuts in 2011, coupled with the increase in VAT, could mean that more people fall into financial difficulties. The Money Advice Trust has already forecast that the number of people seeking advice on debt is going to reach a record high soon. Surprisingly, only around 16% of people who currently have money troubles seek advice.

However, consumers are showing signs of concern when it comes to debt, according to quarter four data from R3. 47% are worried about their credit card debt, 28% about their overdraft and 23% are concerned about meeting mortgage repayments.

Last week, the government launched a consultation into the regulation of consumer credit. It wants to transfer the responsibility from the OFT to a new authority; the consumer protection and markets authority. The government hopes this would provide more protection for consumers and remove regulatory burdens on businesses.

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Rainy day savings are making a comeback

The recession has fuelled an increase in rainy day savings, according to Jonathan Davis, an economist at Jonathan Davis Wealth Management.

In fact a recent survey from Mintel found that around 43% of Britons have prioritised saving for a rainy day this year, up from just 15% last year.

Davis said the credit crisis was a wake-up call for a lot of people, who realised that for the last ten years they have based their life on debt.

This is a little like closing the stable door after the horse has bolted but it is still encouraging that people are now looking to give themselves a financial cushion in case of a disaster such as redundancy. Savers should have a reserve fund equal to at least six months average spending, to get them through unforeseen difficulties, advised Davis.

Although rainy day saving may be on the increase, few people are saving for their retirement and this is of paramount importance, the expert added.

Savers may not be so happy to learn that the Bank of England has forecast that inflation is going to stay above its 2% target well into next year. Currently the CPI is standing at an annual rate of 3.1%, meaning a basic rate taxpayer needs a savings account that pays at least 3.8% in order to protect the value of their investment.

Now could well be the time for contractors to sit down with their contractor accountant and take a good look at incomings and outgoings and decide how to maximise your assets.

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Credit managers predict a rise in insolvencies

Credit managers are expecting to see a rise in business insolvencies of over 10% within the next year.

Graydon UK, a commercial credit reference agency, conducted a survey which showed that 64% of credit professionals are expecting to see business failure rates in excess of 10%, and 13% of those are predicting insolvencies to exceed 20%.

Despite the prospect of increased company failures, just under 50% of the credit managers surveyed agreed that a rise in insolvencies is a price worth paying if the result leads to the future economic stability of the UK.

The MD of Graydon UK, Martin Williams, said that despite warnings from credit professionals, only a third of businesses are monitoring their clients’ public sector exposure.

The entire supply chain could be affected if a key customer or supplier, who relies heavily on government contracts, goes insolvent. HMRC has also been turning down requests under the Time to Pay scheme and 79% of credit managers say this will contribute to the rise in insolvencies.

A lot of businesses are struggling to settle other obligations and if they were expecting to defer tax liabilities they could well find themselves in serious difficulties.

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