Tag Archive | "finance"

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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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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Company insolvencies reach highest level for two years

The lack of business finance is starting to take its toll on companies with 68 firms being forced into closure every day.

According to Experian, 2,112 companies became insolvent during March, the highest monthly total for two years. Almost 67% of them were small businesses that employed up to 50 staff. The list of failed businesses was dominated by four sectors; business services, building and construction, non-food retailers and leisure and hotels.

BDRC Continental has produced a report showing just how difficult it is for small businesses to get finance. The company interviewed 15,000 bosses in the largest investigation of the relationship between small firms and the banks ever conducted in the UK.

The research found that one in three firms could not access the finance they asked for last year. However, in the West Midlands 47% of business loan applicants were refused finance and in the North East, 46% were turned down by their bank. Furthermore, nearly 20% of firms that asked for an overdraft, or wanted a renewal on their existing facility, were rejected.

The banks have claimed that about 80% of applications for business finance are accepted, and the only reason business lending has declined is that small firms are not looking to borrow. BDRC’s research suggests these figures are incorrect.

The company also discovered that most small firms do not intend to grow. The only areas where business owners were optimistic about the prospects for growth were the South West and London.

MPs have now expressed concerns that the National Loan Guarantee Scheme will not help small firms access finance from the banks. Under the scheme, the government guarantees loans to small businesses at lower interest rates than they would normally have to pay.

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Are contractor accountants worried about their finances?

CABA, the Chartered Accountants’ Benevolent Association, says the accountants who contacted it for advice last year were mainly worried about unemployment and finance issues.

The charity received more than 430 calls, letters and emails from chartered accountants and their dependants in 2011. 38% of the callers wanted to talk about financial problems and a further 13% were worried about unemployment. Other common issues were ill health, mental health and carers/caring.

Kath Haines, the chief executive of CABA, said the majority of enquiries the Association receives have been prompted by the sluggish economy. Chartered accountants who have been made redundant are struggling to find another job, older members are finding they have not make adequate provisions for their retirement and others face reduced benefits after changes to government regulations.

CABA has introduced additional resources to help members with problems in these areas, Ms Haines continued. The Association provides the support they need to get their lives back on track as quickly as possible.

The charity was set up in 1886 to offer advice and training to members of the ICAEW, both past and present, and their dependants. It provides debt management and advice, career coaching, financial assistance and has a 24 hour counselling helpline.

Last month, CABA set up two new services to help unemployed accountants get back into the workplace. Workfriend, which is designed to help people brush up on their job seeking skills, and Career Coaching to help those who have been unemployed for some time.

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New initiative may help SMEs access finance

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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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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EFG has £600 million to lend, so why isn’t it lending?

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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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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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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Could a new bank be the small business saviour?

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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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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Is your 40 year old finance manager a typical fraudster?

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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Accessing finance still difficult

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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