Raising finance to grow your business is not about today, it is about tomorrow. The right finance package can be a positive force within your business, one which can be used to propel your business forward.
Building a bigger, better future… that’s what we do
When you’re looking for finance to grow, a lender will want to see a well constructed Business Plan. A great Plan sets out a clear vision for the future, a future in which you soar above your competition.
Helping business owners soar… that’s what we do.
The whole process of raising finance can be a distraction and divert your attention away from what’s important. With mounting priorities it’s a case of which one has to wait. Typically raising finance is one task that can grind you down.
Making it happen… that’s what we do
No one wants to stay in the same place; it’s boring and monotonous. Growth is much more exciting but getting to the next level takes money and with it a range of financial options to consider.
Taking your business to the next level… that’s what we do
Posted on 13.12.2013, by Rob Warlow
In the latest Business Finance Bulletin Rob Warlow looks at the highlights from the SME Finance Monitor report particularly focusing on business demand for finance.
Rob also looks at why a bank would want to convert your overdraft to a loan and the importance of tackling the issue of succession planning when approaching a bank for business finance.
Enjoy this weeks episode!
Posted on 04.12.2013
The latest figures from the Bank of England continue to show how banks are struggling to support SMEs when it comes to access to finance… but is that really the case?
The quarterly figures to October for bank lending to SMEs reveal that the total stock of loans to SMEs has declined by £1.4b during the three months.
As would be expected this fall in lending has been heralded as another example of how banks are not supporting SMEs. However, a closer look at the figures show that bank lending to SMEs is actually increasing when compared to the same period last year but this is being offset by repayments. In other words, small businesses are paying debt down quicker than they are borrowing it back.
New loans (excluding overdrafts) extended to SMEs between August and October totalled £10.4bn. The amount of new loans for the same period in 2012 was £8.9bn, so there has been an increase in lending of almost £1.5bn (16%). This counters the argument that banks are not lending.
This is goo d news but the increase in new lending is being masked by an acceleration in repayment of debt. In the last quarter SMEs paid back £11.8bn, hence the fall in net borrowing (new loans less repayments) of £1.4bn. In the same period last year, repayments totalled £10.1bn, so we can see that the repayment of loan debt is accelerated.
The bottom line is that either banks are not lending enough in order to keep the total stock of net loans up or small businesses don’t wish to borrow; or maybe it’s a combination of both. We looked at the lack of appetite amongst SMEs to borrow in this blog, ‘Banks Are Right Not All Businesses Wish to Borrow’.
A combination of lack of appetite on both sides is where we are at, so we do need to maintain a sense of perspective as regards to how banks are performing. There will always be cases where specific businesses feel aggrieved by a ‘no’ but we need to be mindful that businesses have their part to play when it comes to the amount of money being lent out.
Remember, there are two sides to the lending/borrowing equation – bank supply, and business demand; the blame for falling lending does not currently lie with one party.
Posted on 27.11.2013, by Rob Warlow
With many businesses continuing to find access to finance challenging owners are turning to a variety of personal sources to either start up or fund growth.
Findings by Experian, the global information services company, show that a quarter of small and medium sized enterprise (SME) directors have used personal finance sources of funding including mortgages, credit cards and savings accounts to support their business.
Experian surveyed a range of SMEs to better understand how they fund business ventures. Of those that had used personal finance, almost a third had used personal mortgages to fund their business while 47% said they have relied on high-interest personal credit cards for everyday business affairs.
Personal bank accounts are also frequently used by SME Directors with two thirds (65%) stating that they have drawn on funds directly from their current account and nearly half (48%) saying that they had dipped into their personal savings.
When asked what they were using the money for:
Whilst many will say that businesses should first be turning to external sources of finance (primarily banks) tapping into personal resources is a cheaper method of finance. The exception to this is of course accessing finance via credit cards and you do need to be aware of a potential impact on your personal credit rating if you go down this route.
As well as being a cheaper source of finance, when it comes to approaching banks for finance the fact you have put in a proportion of the project cost is a plus point.
So just remember, no bank wishes to take all the risk.
Posted on 25.11.2013, by Rob Warlow
Latest figures released by the government show that bank lending made through the Enterprise Finance Guarantee Scheme (EFG) has again increased with lending reaching its highest level since 2010.
The figures reveal that banks offered loans worth £111 million to SMEs in the third quarter of 2013 compared to £96m in the second quarter. In terms of loans actually drawn down during this quarter businesses accessed £87m, a slight increase on the £84m lent out in the second quarter.
EFG is a scheme which allows banks to lend to SMEs who would otherwise not receive credit, by providing the banks with a government guarantee for 75 per cent of the loan value. Since May 2010, over 13,400 SMEs have been offered EFG loans with a total value of nearly £1.4 billion.
EFG is offered through 42 finance providers but in the third quarter figures Barclays Bank in particular was praised by consistently offering increased EFG lending since 2012. In the last quarter, Barclays offered nearly twice as much in loans to businesses compared to the same period last year, despite the number of loans offered only increasing slightly.
The increased usage has come off the back of Business Minister Michael Fallon writing to the Chief Executives of the five main high street banks in September 2012 to challenge them to increase their EFG lending after lending continued to fall significantly from the peak in 2009. The combination of ‘naming and shaming’ and a pick up in the economy has no doubt contributed to the increase in scheme usage.
You can find out more about EFG and how it works from here: ‘Understanding the Enterprise Finance Guarantee’.
Posted on 12.11.2013, by Rob Warlow
The banks have long countered the claim that they are not lending with the argument that many businesses don’t wish to borrow. Whilst the banks have to accept they can be too risk averse a new survey has back up their assertion that there is a lack of appetite amongst business owners to borrow.
A new YouGov study finds that almost two thirds (64%) of SMEs have not sought any extra finance over the past two years from banks or any other form of lenders.
The SME Banking 2013 report reveals that that amongst those SMEs that had not obtained additional finance in the last three years, the two main deterrents were not wanting to go into debt (34%) and fears about the economic climate (21%).
The YouGov’s research found the next five factors putting SMEs off from borrowing were,
20% didn’t like the interest rates charged
16% didn’t want to face the hassle of setting up a new facility
12% disliked the terms and conditions of the deal
11% thought they would be turned down and
10% were unhappy with the security demanded by the bank
Looking at the wider picture, the YouGov’s study shows that only 36% of SMEs have looked at alternative sources of finance but 21% have secured funding via crowdfunding and 20% took out leasing/HP agreements. Instead of searching out external finance 18% of business owners have used their own money to fund the business.
The findings of this survey confirm what we have been saying for some time in this blog… more needs to be done to highlight to business owners that there are alternative ways to fund growth other than banks. Also the government must take heed of the fact that a large number of businesses just don’t wish to borrow and so they need to be more selective in the schemes they put in place.
Posted on 04.11.2013, by Rob Warlow
Back in July in this blog we reported that RBS decided to request an independent review of its lending practices with the objective being to enable RBS to enhance its support for SMEs while maintaining safe and sound lending practices. With the review having been carried out the findings reveal that RBS and its subsidiary Nat West has much to do in overhauling its lending processes.
The investigation, headed by former Bank of England Deputy Governor Andrew Large concluded that RBS has not supported the SME sector in a way that meets its own targets or the expectations of its customers. It says that while RBS has started to address a number of the issues raised, further progress is needed.
The report identified a number of reasons for RBS failing to hit its lending targets, including:
RBS’s SME lending targets were at odds with its tougher credit standards, and the limits imposed on lending to certain sectors, for example lending to commercial real estate
Internal restructuring had led to lack of clarity as to which part of the bank was responsible for SME lending
There is a ‘risk adverse’ culture amongst its Managers and Credit Officers
The bank’s lending process is time consuming and loan applications take longer than at other banks
Credit skills of customer-facing staff, although improving, are not up to standard
Having an independent committee pull apart your business and highlighting areas of weakness is a tough message to take but RBS CEO Ross McEwan has accepted the findings and recommendations and has committed to take action. Looking at the findings I suspect that other High Street banks are guilty of many of these sins.
McEwan has committed RBS to the following key actions amongst others:
The bank will write to thousands more SMEs setting out clearly how much it is willing to lend to their business. It has already offered £4 billion of lending opportunities following a similar exercise earlier this year;
A dedicated website will be developed to show clearly what information RBS use to make a lending decision and set out simple, clear steps in its lending process;
The bank will begin work to enable bankers to make all but the most complex lending decisions in just five days of receipt of all necessary information;
RBS will ensure two thirds of its lending decisions are made locally and by sector specialists;
RBS will continue to invest in building the capability of its people with at least 90% of Relationship Managers and Credit Managers professionally qualified;
RBS will start a programme to make all customers whose loan applications are declined aware of the appeals process, and will continue to work with the Independent Appeals Chair to improve the support it provides to customers going though this process; and,
The bank will commit to pointing businesses to alternative sources of finance where it cannot support a loan application.
This is a big undertaking and RBS will on an annual basis publicly report on progress against these commitments. It will be interesting to see how they fare in addressing these issues given the mammoth task ahead of them.
Posted on 01.11.2013, by Rob Warlow
If you’re in business today then there is no getting away from the message being heavily promoted that ‘banks aren’t lending’ or ‘banks are not interested in supporting small businesses’.
As with all messages, there are always two sides to the story. Regular readers of this blog will know that I have consistently argued that both banks and business owners have equally responsibility in making changes to get to that all too elusive ‘yes’.
The need for both sides to see each other’s point of view has been highlighted in a new piece of research carried out by chartered accountancy firm Kingston Smith LLP in conjunction with the Business Schools of the Universities of Surrey and Greenwich.
The research ‘Bank finance – lost in translation’ reveals a number of key misunderstandings between banks and SMEs which effectively put up barriers when to comes to lending to SMEs.
The findings of the research were based on face-to-face interviews with the senior lending policy makers at five major and challenger high street banks, as well as interviews and focus groups with SME owner/managers, so a well-balanced panel.
The report came up with four key findings.
SMEs’ perceptions of banks’ lending policies are more negative than they need to be
Since the start of the credit crunch the media has been very vocal about the banks’ perceived failure to lend and it’s clear that many business owners have been put off applying for finance because they assume they will be declined.
This negative assumption has been regularly highlighted in the quarterly SME Finance Report and the findings in this latest research confirm this perception is very much alive.
In previous blogs I have said that business owners can’t look back at the past and longingly hope for a return to those days when credit freely flowed. It’s just not going to happen – now is the new normal.
As in any aspect of running a business, persistence is the key. If you are knocked back, find out why, learn from it and make the necessary adjustments to your Business Plan and proposal.
SMEs would benefit from greater clarity regarding banks’ loan application processes
The research found that many SMEs are unaware of, and don’t understand, banks’ loan application requirements.
This finding is focused mainly on access to information on what banks want to see in order to process a finance request. Bank websites on ‘how to apply for a business loan’ were found to vary in effectiveness and ease of navigation thereby putting another barrier in the way of doing business.
SMEs are often unaware of banks’ lending criteria
Perhaps not unsurprisingly SMEs feel that the bank’s loan request assessment process is a black art, something of which they have little understanding.
For example many SMEs are unaware that banks expect them to invest in their own businesses and make a contribution to an overall project cost by injecting a percentage of the funds required. This ‘partnering in the risk’ extends to the provision of some form of security for the loan, whether that be property or director’s personal guarantees.
SMEs also need to be more aware that some banks favour one sector whilst another is less keen to lend into that industry. Where does your bank sit in relation to your sector?
The banks interviewed said they only make loans to SMEs which are considered to be commercially viable and SMEs can improve their chances by demonstrating both a convincing business idea and financial acumen.
The lack of understanding about how banks thinks has been a central theme is all my blogs and videos and was the key reason why I wrote ‘Loan Sharp: Get the Business Finance You Need’.
As in any negotiation, to be successful you need to understand how the other side thinks.
Subsequent to the loan decision, banks’ feedback and support offered to SMEs is often unclear and inadequate
The report is not totally biased towards the banks; one area of criticism levelled at the banks is how they feedback a ‘no’ decision. Whilst the banks said they do provide reasons as to why they are not supporting a request the general consensus amongst business owners was that this is not the case.
I have certainly seen examples of this and banks certainly do need to be more specific in why they are declining a request for finance. If vague reasons are given then it’s more challenging for the business owner to make the necessary changes to convert the ‘no’ to a ‘yes’.
The recommendations coming out of this piece of research is an excellent summary of what both SMEs and banks can do to come closer together.
SMEs should:
Banks should:
Policy makers should:
Further to your recent presentation at LEAD Wales just wanted to say it was very refreshing to see somebody talk passionately and positively about finance, very insightful!
Hi Rob, it was so interesting and entertaining listening to you at the Kevin Green Wealth Coach Workshop in Reading this weekend! I didnt realise you can find Finance proposals such fun!. Brilliant tips! Thanks.
Rob delivered a series of 3 workshops aimed at understanding how finance houses look at finance propositions with the aim for us as a team to deliver more of a bespoke offering to our customer base. The training was delivered to a mixture of staff who work with new businesses start-ups and existing established businesses across Mid & South West Wales. Rob delivered the training with an abundance of passion and has really helped my team look at financial propositions in a different light, many thanks again Rob and I look forward to work with you in the near future.
Rob kindly agreed to attend the recent Pontypridd RFC sponsors networking evening and delivered what can only be described as an excellent talk on 5 Tactics to Boost Your Business and Your Profits. He kept the audience engaged throughout and the feedback from everyone was excellent. Rob is very knowledgeable on business and finance and on top of that is a genuine nice guy. We hope to have him back at a future event and I have no hesitation in recommending Rob’s services.
I wanted to thank you for such an insightful, energetic, and entertaining talk at the Kevin Green Wealth event on securing funding and creating a successful plan. It was brilliantly executed and a pleasure to listen to and the ideas I’ve learned are definitely going to help me in going forward.