In this week’s episode Rob Warlow looks at a report carried out by Bibby Financial Services on micro businesses and in particular the problems surrounding succession. In a further sign of the crowdfunding sector gaining more visibility Rob talks about a new arrangement between crowdfunding platforms and certain bank members of the British Bankers Association on the issue of sharing security.

Rob also shares his thoughts on the importance of diversifying your funding sources so you are not dependent on just one bank.

In the Business Finance Tip of the Week Rob looks at one aspect of getting a ‘no’ from your bank – why you should not see it as a fail.

Posted on 25.02.2014, by Rob Warlow

With the economy picking up confidence is beginning to return and small to medium sized manufacturers in England are set to embark on a major investment drive in order to meet expected increase in demand.

A survey from the Manufacturing Advisory Service (MAS) has revealed that 86% of respondents were planning to invest in capital equipment over the next twelve months, with companies looking to spend £121,000 on average.

Two thirds of the firms questioned are looking to purchase new plant and machinery, and just over half are focused on upgrading IT/communications infrastructure and nearly a third on improving premises.

So what’s prompting this investment drive?

The key reasons cited by those businesses surveyed were boosting efficiency and quality (31%), followed by developing new products/processes (30%) and extending existing capacity (22%).

Interestingly fewer than one in five companies (19%) said they planned to approach banks to fund capital equipment purchases in the next year, with manufacturers instead choosing to secure money via grants (27%) and the Regional Growth Fund (21%).

A even more positive sign that the economy is kicking back into life is that 62% of companies reported an increase in sales over the last six months, whilst over three quarters of businesses (76%) expect to boost sales between now and June 2014.

If you are looking at growth plans this year then we’re happy to have a chat about your financing options.

One alternative source of business finance that is growing in popularity is family and friends.

In this clip taken from an ‘Access to Finance’ seminar for the accountancy body, ACCA, Rob Warlow talks about the pros and cons of getting business finance from this source.

Beware!

Posted on 05.02.2014

With 2014 being a year of growth for many businesses, as we have talked about before in this blog, the question is how is that growth going to be financed?

Whilst there is evidence to suggest that banks are dipping their toes back into the market and avenues for alternative sources of finance continue to grow, one area of funding that is under-utilised and little understood is equity.

A recent report issued by the CBI, ‘Slice of the Pie: Tackling the Under-Utilisation of Equity Finance’, has revealed that just 3% of small and medium-sized businesses use this type of finance.

Raising equity to release cash involves shareholders selling a slice of their business and yet for many business owners this is a step too far. Not unsurprisingly the report reveals that the biggest barrier to improved demand for equity finance is the perception of losing ownership. 46% of businesses say they will not considering using equity finance due to concerns about losing ownership and decision-making power.

The CBI survey finds though that 68% of those firms which have raised finance this way believe that the investment had a positive impact on their business. As a result, four out of five of these businesses said that they would use additional equity finance to fund their business growth in the future. Bringing in new capital has also helped 26% of businesses gain additional external finance.

These businesses are ready-made advocates of equity finance, with 81% saying that they would recommend equity finance to another business.

Against the background of these benefits the CBI has recommended the following actions:

• All parties should proactively promote the benefits that equity finance can bring to a business and dispel the myths about it being a less attractive form of finance
• The government’s soon to be launched Business Bank should develop an equity/finance option to help ease businesses concerns about losing control.
• Government should trial adjusting the criteria of its equity co-investment schemes, such as Business Angel Co-Investment Fund and Enterprise Capital Funds,
• Government should pilot a simple tax incentive to encourage retail investors to hold shares on a longer-term basis
• HMRC must streamline the application process for small and medium-sized businesses to gain Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) qualifying status

Posted on 04.02.2014, by Rob Warlow

New figures released reveal that peer-to-peer lending (P2P) increased by 121 per cent during 2013.

The report published by the Peer-to-Peer Finance Association (P2PFA) shows that cumulative lending at the end of quarter four in 2013 hit £843 million compared to just £381 million at the end of 2012.

The report further reveals that at the end of 2013 there were over 3,700 business borrowers, 70,000 consumer borrowers as well as more than 86,000 active lenders.

The data has been supplied by Zopa and Ratesetter who service the individual/personal market and Funding Circle, Thin Cats and LendInvest. With many other providers in the market the actual figure will be higher, although these are the major players so constitute the majority of deals.

With the P2P platforms set for regulatory oversight by the Financial Conduct Authority from 1st April the alternative lending market is going to be set for further growth this year.

Posted on 23.01.2014, by Rob Warlow

Face with growing outcries about the continual fall in bank lending, the main High Street banks have launched a new campaign to get businesses borrowing.

The banks, together with the British Bankers Association, are keen to let businesses know they are a lot more likely to get bank finance than they think. The banks, which include Barclays, HSBC, Lloyds, Nat West, RBS and Santander, quote a recent SME Finance Monitor report which says that while only 37% of SMEs planning to apply for finance believe they will get approval from their bank, actual approval rates are a lot higher at almost 67%.

The research from the BDRC survey identified as many as 270,000 businesses that wanted to apply for finance but never actually ended up doing so. It attributes a lack of confidence in their chances of success as one of the key reasons for this.

The message of the campaign is that increasing confidence amongst businesses around lending has the potential to boost the UK economy, as if all of those businesses went ahead and applied for finance this could enable:

• 53,000 small and medium sized businesses expand in the UK
• 48,000 new orders for equipment
• 113,000 businesses to boost their spending power
• 16,000 companies to develop new products or significantly improve their offering to customers

The 12-month campaign will be aimed at businesses with a turnover of less than £25million, and working alongside the government, politicians, banks and business groups it will spread the message that SMEs are a lot more likely to get finance than they think.

The campaign, featuring online advertising and social media outreach, will provide top tips for finance success, promote schemes such as business mentoring and showcase examples of businesses that have gone on to grow and prosper after securing a loan.

Posted on 13.01.2014

In this episode of the Business Finance Bulletin Rob Warlow looks at the latest bank lending figures which, when you look closer, shows that banks are beginning to lend more to small businesses.

Rob also looks at the consequences of not diversifying your client base and how this is one area of risk that banks consider when reviewing a business finance request.

Posted on 06.01.2014, by Rob Warlow

The monthly business borrowing figures released by the Bank of England has once again fuelled the ‘banks aren’t lending’ debate but as I mentioned last month (Bank Lending to SMEs Is Falling But That’s Just One Side of the Story) delving deeper into the figures reveals a slightly different story.

The release of the November bank borrowing figures lead to media comments such as ‘bank lending tumbles’ and ‘slump in bank lending’. These headline grabbing quotes was on the back of Bank of England figures which showed that in the month of November alone the total amount of business lending (overdrafts and loans) fell by £4.7 billion.

However, the detail in the numbers doesn’t quite support such a doomsday situation and here’s why.

The monthly reduction figure quoted is the fall in ‘net lending’ – this is the total stock of all borrowing which is the sum of new lending drawn down in the monthly less monthly repayments.

What is happening is that businesses are repaying debt quicker than the banks are lending it back out.

Here are the figures (these numbers only include loans with overdrafts having been taken out in the stats by the Bank of England):

We can see that in August the banks lent out £9.6b and whilst this increased to £15.5b of new lending in October, the amount of £13.5b in November still compares favourably.

However, new lending is being offset by higher repayments in the month so resulting in a reduction in the total stock of loans. In November new lending of £13.5b was offset by repayments of £16.7b resulting in a net reduction of £3.1b.

These figures relate to businesses of all sizes but the Bank of England also issues figures with the larger businesses stripped out leaving just SME borrowing and these reveal a slightly different picture.

We can see that overall there has been a steady increase in new loans to small businesses. The British Bankers’ Association has quickly pointed out that the new lending to SMEs (totalling £4 billion in November) was 38% higher than the £2.9b seen in the same month in 2012.

Nearly 40% increase! I don’t see this figure being mentioned too much in the media!!

And there is further good news; for the first time in many months, November actually saw a net increase in lending to SMEs of £200m i.e. more was lent out than was paid back.

So, both from a combined position, and for SME lending on its own, the underlying problem is that businesses are paying off debt at a quicker rate than they are taking on new loans.

At a gross level, bank lending does appear to be increasing.

We can argue that banks should be making an effort to lend more in order to get to a positive position each month but should we be too concerned that businesses are paying down debt? We saw businesses gorging on easily available credit during the boom days and quite sensibly they are now focused on paying debt down.

I have talked before about the lack of appetite amongst businesses to borrow and this has been highlighted in a number of surveys. The most recent of these is the quarterly SME Finance Monitor report. In its latest review to Quarter 3 of 2013, they reported that 78% of SMEs classified themselves as ‘happy non-seekers of finance’.

Yes, nearly 80% of those small businesses surveyed said they have had no interest in borrowing over the last 12 months! No wondering that debt repayment is exceeding the total of new loans disbursed.

So, let’s not listen too much to the negative press headlines. Undoubtedly there are some businesses who feel aggrieved at their bank saying no; yes, in some cases banks could be less risk averse; but the bottom line is that there is evidence emerging that lending is on the way up… for those business who actually want to borrow that is.

Posted on 02.01.2014, by Rob Warlow

In the latest Small Business Index survey undertaken by the Federation of Small Businesses (FSB) firms are reporting that access to finance is getting easier.

The survey reveals that the number of firms refused their credit application is the joint lowest share since the start of 2012. Mirroring other surveys which looks at the demand for finance only 16% of respondents had applied for credit in the quarter, which means businesses could be paying for investment out of existing sources of capital.

Those businesses accepted for finance continue to report cheaper interest rates being charged, a direct result of Funding for Lending (FLS). With the government having recently re-allocated FLS funds to SME lending the FSB hopes this will mean the banks make finance available to more small firms.

The survey also reports that the UK’s small firms are showing increasing optimism for 2014 as businesses remain positive about the economic outlook.

This increased confidence means more small firms are planning to invest in and explore the global trade market. New data shows businesses expect to see rapid or moderate expansion in the next 12 months. Alongside this, one in 10 businesses report running above capacity while a third are running at full capacity – both the highest figures since the Small Business Index began in 2010.

Feeding into expansion plans, capital investment intentions continue to rise with almost a quarter (23.1%) expecting to invest in the next year.

Posted on 27.12.2013, by Rob Warlow

In the government’s quest to make more finance available to SMEs it has announced its intention to help alternative financiers have access to better information on SME’s credit background.

The commitment to make it easier for newer lenders to assess loan applications via improving access to SME credit data was made in the 2013 Budget. Since then the government has been working with the Bank of England, the Office of Fair Trading, the Financial Conduct Authority, the Department for Business, Innovation and Skills, and the banking industry to investigate options.

If you have read my blogs you will know that when assessing the creditworthiness of small businesses an important source of information for the lender is a business’ past financial performance. The problem is that more in-depth information (outside of that held by the Credit Reference Agencies) is often held by the bank that provides the business’ current account and is not widely shared.

The result of this is that challenger banks and alternative finance providers don’t have access to the same level of information as the bank with which the small business already has a relationship.

The solution being proposed by the government is that banks will be required to share information on their SME customers with other lenders through Credit Reference Agencies (CRA).

The government has opened a consultation period until mid February for industry players and other interested parties to comment. It will be interesting to see the banks responses to the request to share a deeper level of information they hold on their clients.