The number of complaints from small businesses about bank loans, has rocketed by 119 per cent in the last 12 months says new bank Aldermore.

496 complaints were made to the Financial Ombudsman (FOS) by small businesses about their bank loans or overdrafts over the last year compared to 226 complaints in the previous 12 months.

Aldermore says that these complaints are likely to be just the tip of the iceberg as only businesses with an annual turnover of less than €2 million euros (approximately £1.8 million) and fewer than 10 employees can complain to the FOS.

Aldermore says that the figures prove that there is rapidly growing discontent amongst small businesses over their treatment by the big banks.

Phillip Monks, CEO of Aldermore said: “Small businesses that we talk to actually feel betrayed when their businesses is running fine but the bank still decides they are not going to renew their loan facility.

“Another complaint we hear from companies is that the bank is going to renew their loan facility but only if they pay a huge arrangement fee – a fee they were never asked for when they first took the loan out.

“Some banks do that knowing the customer might be too worried to shop around.”

“The big banks aren’t happy to admit but their balance sheets are under strain and they are having to knock back perfectly good customers.”

Net lending to UK businesses fell by £3.2billion in Q1 2010. Gross lending to businesses has fallen by 38.8 per cent in the same period, £43.3billion in Q1 2009 to just £26.5billion in Q1 2010.

The data obtained by Aldermore also reveals that the number of complaints made against all financial services providers by small businesses has rocketed by 43 per cent in the last 12 months from 3252 in 2008/09 to 4656 in 2009/10.

More than one third of UK small and medium sized businesses have been declined a bank loan in the past three months, new research from business software and service provider Sage UK today revealed.

The Sage UK Omnibus surveyed 1,500 small and medium sized enterprises (SMEs) in May 2010. It found that 34 per cent of UK SMEs who attempted to borrow money from a bank had their loan application declined. The research also highlighted that 58 per cent of the businesses questioned did not feel they were given an attractive rate for their loan.

Robin Moore, product manager of Sage’s Small Business Division said: “The decision on a loan can make or break a firm, so it is a concern that so many SMEs that evidently believe they need the funds are being declined. There is a range of best-practice measures that entrepreneurs can adopt to increase their chances of getting the green light on a loan and our advice would be to put yourself in your bank’s shoes and think about what they would need from you.

“Producing a detailed business plan is paramount. It might feel like information overload, but by conducting and presenting research that proves why you need the funding, explains how much finance you need and how are you going to pay it back, you can address any concerns the bank may have before they arise. It is equally important to develop and provide a contingency plan with the best and worst case scenarios, as this illustrates to the loan provider that both you and your business are prepared for any eventuality.”

Tens of thousands of people decide every year to go it along. And while the risks are high, the rewards can be enormous. Working for yourself, earning your own money and controlling your work means much more than simply working for the man.

But there are no guarantees of success. A significant number of new ventures never reach their second birthday, and failure can affect your personal finances significantly.

So you need to do some homework before you risk your money. Here, we give you ten top tips to get on the right track from the start.

1. Focus on your product

Whatever your business, you need to make sure you really know what you’re doing. Who else is in the market? If there’s plenty of competition, what are you doing to make your business stand out? If you’ve found a niche – either a product that doesn’t exist, or a service not available locally – think about why nobody else is doing it. There may be a good reason for it not being available.

2. What kind of company are you?

“Deciding on what type of company you set up as is key,” says a spokesperson for the Federation of Small Businesses. “It affects the kind of finance you get to work with, the roles and responsibilities of the owners and your tax status.” For start-ups, there are effectively three main options – a sole trader, a limited partnership or a limited company. Each has its own benefits and disadvantages, and it’s well-worth doing some research on each to see what is best for you.

3. Which bank?

Despite the current economic turmoil, banks are still keen for business from start-ups, and many offer a range of incentives. While the benefits of free banking for a year or cheap initial overdrafts may seem vital, it’s more important to look at the long-term value, so compare the fees and charges once your deal period ends before you take the plunge.

4. Other financial services

No matter which bank you end up with, you don’t have to take all the products you need with it. If you need a small business insurance quote or a loan rate, compare the prices of the whole market to get the best deal.

5. Check your liabilities

As a business owner, you have responsibilities to your customers, your employees and your suppliers. If you fail in those responsibilities, you could be held liable for any injuries or damage that result. Make sure you have liability insurance in place to cover yourself against any claims.

6. Take advice

You can’t be an instant expert in all areas of running your business, so don’t be afraid to ask for help. Professional groups, such as your bank, will be able to give you information and advice on some areas, but it never hurts to canvas friends and family for their tips.

7. Don’t ignore the paperwork

There are legal implications for businesses that don’t keep up with their administration, but a disorganised approach to your paperwork means that you will miss opportunities and fail to spot any potential obstacles ahead.

8. Know the law

All businesses are subject to certain laws, and there will also be rules and regulations specific to what you do. Make sure you keep within the rules – the penalties can be huge and your reputation may never recover.

9. Get the marketing right

Understand where your potential customers are and build up a strategy to attract them – they’re unlikely to come to you. “The best strategies are usually the simplest, so when setting your marketing strategy make it achievable and ensure it fits within your budget,” says Julia Payne, co-founder of The Edge Business Club.

10 Don’t give up!

There will be obstacles and you’ll have good and bad days, but building up a new business is always going to be hard work and the biggest successes tend to come from the businesspeople who try the hardest.

You may think you know everything about a potential new business, but if you’re looking for finance, or support services, you may need to be able to prove it. Creating a business plan will help you show potential partners that you have a comprehensive and sustainable strategy for making your business work.

Building a plan can also work in your favour. Setting down your ideas and plans on paper – or, more likely nowadays, on a computer screen – can help you focus on the key issues you need to consider. It will highlight any potential weaknesses and show you areas you need to work on. This means the purpose of your plan should be twofold – firstly to show to any potential investor, lender or service provider, and reassure them that you are a serious, viable business; and secondly to provide a template for the direction of your business.

So what should a business plan contain? Experts’ views vary, but there are some core areas that must be included:

• Cashflow. Businesses run on income, so you need to set down what monies you expect to come in, and what expenditure you’re likely to incur;
• Profit and loss. If you’re a new business, you’ll need to estimate what profit you expect to make over the coming years – at least one, and usually at least three. Be realistic, it’s better to exceed expectations than underperform;
• Balance sheet. What will the business own – physical assets, such as machinery, or those less easy to quantify, such as data and goodwill, need to be valued and accounted for;
• Sales forecast. You can be as detailed or as vague as you like, but you need to be able to give people an idea of the income you expect to bring in
• Personnel. Who do you need to run the business? Even if you’re planning on being a sole trader, you may need assistance from time to time, and businesses that plan on employing staff must have a plan for their recruitment and management;
• Market report. Don’t expect everyone you come into contact with to be an expert in your sector. Put down in writing what the market is like and again be realistic – all areas are subject to challenges at some point, so it’s much better to point out potential obstacles in advance to help you plan better for the future.

Case study

Mark Milkins’ import/export company has benefitted greatly from the amount of time he spent on his business plan. “I left a shipping company to set up on my own and thought I knew everything I needed about this market,” he says, “but when I went to set up a bank account and get credit facilities, the bank basically said it wasn’t interested unless I had a business plan.”

But the hours Mark spent compiling his plan helped him identify gaps in his knowledge. “I realised I wasn’t an expert on tax, and I didn’t know enough about marketing,” he says. “So I made sure I got that knowledge before I started trading – if I hadn’t done so, I could have got myself into a lot of trouble.”

Barclays has today announced a further £88 million is available to lend to SMEs through the Enterprise Finance Guarantee (EFG), which was introduced during the downturn to help more businesses get finance. The scheme enables Barclays to lend to viable businesses that, because they cannot offer sufficient security to meet normal commercial lending, would not otherwise be able to get the finance for their business to survive and grow.

Barclays has already made available over £150 million in EFG loans in the last year, or almost one in every four EFG loans across the UK.

“Time and again over the last year EFG has proven to be a superb way to support worthy businesses,” said Steve Cooper, managing director of Barclays Local Business.

“We’re a big believer in EFG – through it we’ve been able to assist over 1,650 businesses with loans.

“The new funding we’re announcing is going to continue that good work, to help more businesses become successful and help pull the UK out of recession.

“Enterprise Finance Guarantee covers a key gap in the market – companies that are viable, perhaps even strong, but could not get a loan because they do not have sufficient security.”

Trade, Investment and Small Business Minister Lord Davies said: “The Enterprise Finance Guarantee has helped thousands of viable businesses access the finance they need to withstand the recession and prepare for recovery. Following its recent extension, it will continue to play a vital role in encouraging enterprise and investment and driving productivity and growth throughout the UK economy.”

What is the loan?

EFG is a loan from Barclays to our customers, where the Government guarantees a proportion of the lending if the customer is unable to repay the debt.