With bank confidence still at an all-time low, small business owners have turned to their personal funds to boost their businesses. Over half (57 per cent) of small business owners have used their personal funds to inject capital into their business and 17 per cent have asked friends and family for additional funds. With over 70 per cent of borro’s customers being small business owners it is not surprising that 16 per cent of SME owners have also used their personal assets to secure finance over the past 12 months.

Two thirds (66 per cent) of small and medium sized business owners  lack confidence in their bank, and are unsure of whether their bank will lend to them. As a result only one in five (19 per cent) of SMEs have attempted to secure bank finance for their business in the past year and only a third (31 per cent) of this group have been successful in securing the finance in full.

Over two thirds (67 per cent) of small to medium sized business owners believe that banks should relax their lending criteria as those seeking finance are denied due to credit checks and not fitting the lenders profile.

Paul Aitken, CEO of borro, commented: “A dramatic shift is needed for smaller business owners to feel they can gain access to much needed finance. While some of the initiatives introduced by the Government may ease the capital battle that has taken place over the past year; there is still a demand for small business owners to access finance quickly. This may be to ensure the business is able to take advantage of growth opportunities or address cash flow problems before they escalate. Our research demonstrates that this demand is not being met by banks and other traditional lenders.”

The influential UK Commercial Property Lending Market mid-year report by De Montfort University, published today, found that the value of outstanding, on-balance-sheet debt fell from £208.4 billion to £201.3 billion in the six months to June 2011, a reduction of 3.4 per cent.

However, it also delivered a stark warning of the scale of the challenge facing property lenders, revealing that around a half of this debt, in a range of £85 billion-£114 billion, could not be refinanced on current market terms and that one quarter was secured on a loan-to-value ratio of more than 100 per cent.

The study, the largest of its kind to look at UK commercial property debt, estimated total UK debt of between £280 billion and £292 billion at mid-year 2011 (down from £288 billion to £298 billion at the end of 2010) including £46bn outstanding in the CMBS market and an estimated £19.9bn held by NAMA – Ireland’s “bad bank”.

This continued the measured reduction in debt seen during 2010 that has so far avoided a fire sale of property assets and a collapse in capital values. Report joint author Bill Maxted said the “process of deleveraging continued at a modest pace during the first half of 2011″.

However, the report found that the uncertainty triggered by the deepening Eurozone crisis and the lack of growth in the UK economy had exacerbated the ongoing lack of liquidity and increasing costs of capital in the property lending market.

Investigating the loan-to-value ratios of lenders’ loan books for the first time, the report found that 41 per cent – 56 per cent, or £84 to £114 billion, of loans “may not be refinancable on lending terms available in the market at mid-year 2011″.

Falling investment values meant that one quarter of this debt (24 per cent) had a LTV ratio of above 100 per cent, while just one fifth (21 per cent) had an LTV ratio of less than 60 per cent.

Lenders have been willing to extend maturing debt on non-market terms, with £48.4 billion of these loan extensions recorded by the research since 2009.  Consistent with that, a recent FSA survey found around 33 per cent of commercial property loans, representing £66 billion, to be in some form of forbearance.

The lending market also continued to contract. Two-thirds of lenders (66 per cent) said commercial property was an asset class against which they were willing to lend, but the proportion intending to increase the size of their loan books fell from around half (46 per cent) to one third (35 per cent) at mid-year 2011.

Almost all of those willing to lend (64 per cent of respondents) would do so against a prime office property, compared with just 29 per cent for a loan secured by a secondary office.

And further regional disparities were also highlighted by respondents. London and the South East were seen as being in “recovery mode” while “recovery in the provincial markets could take six years or perhaps longer to achieve with much pain during this period” – a gap described as “enormous” and “unbelievable” by respondents.

Development finance remained challenging. Those willing to lend against a fully pre-let development fell from 52 per cent to 31 per cent, and those willing to lend against speculative development fell from 17 per cent to 15 per cent.

Bill Maxted said: “Lending organisations commented that the existing liquidity crisis had been made more acute by the problems of European sovereign debt and the unknown extent of contagion between banks.

“Respondents have suggested that only an increase in confidence in the UK economy, demonstrated by a number of quarters of sustained growth in UK GDP, would signal a recovery in the commercial property market in the UK.”

Liz Peace, chief executive of the British Property Federation, the leading body representing developers and investors, said: “These figures underline how critically important it is for government to use all of the tools at its disposal to help tackle this overhanging property debt.

“This means encouraging new debt buyers in to the market – something that we think reform of the real estate investment trust regime to allow the creation of mortgage reits would help to achieve.

“It also means finding ways to encourage new investment and spur economic growth. One easy way would be to stop charging full business rates on empty commercial properties, something that is a considerable disincentive for landlords who wish to invest in premises for small and medium firms.”

The clinics launch as recent statistics show that only 15 per cent of businesses applied for borrowing in the last year, reflecting a crisis of confidence among businesses. The research also reveals that while 42 per cent of businesses think they will get a business loan before they apply, 75 per cent actually succeed, indicating that many businesses don’t believe they can get finance.

The first clinic launched by Barclays Retail and Business Banking chief executive Antony Jenkins in Manchester kick started 85 UK-wide clinics, which aim to reach around 1,600 businesses.

Barclays business people will answer key questions on lending and walk businesses through the loan application process, with alternative finance providers on-hand to provide a fully rounded picture of all the financial options available. At the same time, local businesses will have the opportunity to tackle senior bank leaders head-on about the barriers to borrowing that they feel they face.

Antony Jenkins, chief executive, Barclays Retail and Business Banking said: “Barclays is committed to helping revitalise the UK economy which is dependent on small businesses having the confidence to invest and grow.

“Confidence will begin to be restored when businesses are equipped with the belief to make informed decisions about their future.

“Every day Barclays is committed to helping small businesses grow. From the top to the bottom of the UK, our lending clinics will take the mystery out of borrowing for thousands of businesses.”

It is thought that the ICB, due to report on Monday, will propose that internal ring fences should be put in place to separate the banks’ retail and wholesale divisions and that the banks should increase the amount of capital they hold.

The banking lobby has said that doing this would have a detrimental effect on the amount of money that it can lend and that the cost of finance would increase as a result. They have also said that any reforms now would derail economic recovery.

The banks say that ringfencing will remove the implicit Government guarantee to bail-out a bank that is in trouble and that being required to hold more capital will mean that there is less money to lend.

However, in a new paper, ‘Does bank ringfencing automatically mean an increase in the cost of borrowing?’, the FSB argues that the guarantee would be removed from the investment banking arm and would remain for the retail arm – the section of the bank that lends to people and small businesses.

And, increasing the capital requirements over the medium term and putting a ringfence in place would be beneficial to the structural resilience of the UK banking sector.

If the ICB suggests that capital requirements are raised to more than 10 per cent for example, the FSB recommends reforms be announced as soon as possible but that the banks be given the course of this Parliament to reach those standards. Funding for this increase can be made up from ear-marked profits and reductions in short term incentivised pay.

John Walker, national chairman, Federation of Small Businesses, said:

“The banking sector cannot be too big to fail as the taxpayer cannot afford another bank bail-out. The Government has a golden opportunity to reform the banking sector and it must stand by the promises that it has made.

“The recommendations that the ICB make must be looked at closely and the Government must act on them as soon as possible and ensure they are completed before the end of the next General Election. The Government must use this once in a lifetime opportunity to make the banking sector safer, more competitive and less burdensome on the taxpayer.”

All the southern regions see an average vacancy at or below 11 per cent while the Midlands and North range from just under 13 per cent in the East Midlands to 16 per cent in the North West.

The top ten worst-performing large centres are in the West Midlands and the North while seven out of the top 10 best large centres are in the South.

Amongst the medium sized centres the situation is the same with the top ten centres all in London and the South while eight out of the ten worst-performing centres are in the North. The only exceptions are Dartford with a vacancy rate of 26.3 per cent and Newport in South Wales with 26 per cent. The best performing medium-sized centres run from Sevenoaks with a vacancy rate below five per cent to Falmouth at 6.6 per cent

As far as the smaller centres covered are concerned, the best performers are again mainly in London and the South East. At first glance the top 10 worst performing small centres looks different with Margate (36 per cent vacancy) and Wandsworth (31 per cent) at the top of the table. However further down the list the picture becomes more familiar with the likes of Runcorn, Corby and Bootle all seeing poor vacancy rates.

There is increasing evidence that the retailer pain is not spread evenly between the high street and the shopping centre. The latest results from several of the big, retail-owning property companies show their revenues have been surviving any tenant difficulties with ease. Solid rental growth, footfall and occupancy levels demonstrate that prime properties are taking market share away from other locations.

Matthew Hopkinson, director at the Local Data Company commented:

“This report shows how fragile the British High Street is in parts of the country. The pressures it faces are increasing and therefore one needs to be realistic in one’s approach to each and everyone of these towns if they are all to have a future. The stark reality is that Great Britain has too many shops in the wrong locations and of the wrong size. The diversity of shop vacancy rates is clear evidence that a local approach is required that ties in with consumer needs and the realities of modern retailing. The market still has significant corrections ahead and the impact of these will vary significantly according to location.”

Liz Peace, chief executive of the British Property Federation, said:

“Many of high streets and town centres are in a critical, but stable condition. Their recovery is not just going to happen, but will need nursing. It will require investment from our sector, and the confidence that goes with a local authority that has leadership, a clear vision, and a willingness to plan and manage their retail environment. We must also accept that some secondary retail units are no longer viable and plan their transition to other uses. Simply hurting successful retailing to level the playing field is not the solution. We must find new ways to get people on to our high streets and in our local shops.”

David Whittaker

The increase is down to increased confidence in the market, says the broker. One year on from the demise of Lehman Brothers, investors and businesses feel ready to re-enter the market.

Steve Olejnik, head of sales said: “The largest increase has been in placing traditional mortgages for trading businesses and commercial investments – but we’ve seen more HMOs, limited company buy to lets, residential developments and semi-commercial enquiries, too. Mortgages for Business have been dealing with commercial mortgages for the past 20 years and none of us have seen an uplift like this before.”

MD David Whittaker said: “This explosion in commercial business is the result of the recent run of house prices increases. Price rises are encouraging small developers to review projects that were not viable at the beginning of the summer. Suddenly, developers need to finance the purchase of sites to build properties on so they can have stock ready for sale in the summer of 2010.”

Whittaker added that most of the major high street lenders are still very risk-averse, and it’s been the boutique firms who are jump starting the commercial finance revival.

“We are experiencing this upswing because high street banks are unwilling to support new projects. They’re still trying to bolster their balance sheets, and demonstrate greater liquidity and return on funds. So borrowers are turning to specialists like us.

“Furthermore, our relationships with the main commercial lenders – including Aldermore – have really come through for us recently. This is funding that is not accessible to a large number of brokers. As a result, we’ve been placing a number of complicated deals that our peers haven’t been able to handle.”

So far, Mortgages for Business has joined the panel, with more intermediaries to sign up imminently. Product details have not yet been announced yet, but David Whitaker, chief executive of Mortgages for Business suggested that the company is looking to launch slowly over the summer, and then really start promoting its services to the wider market as the industry heats up in the autumn.

The decision follows the recent acquisition of Ruffler Bank by Base’s backers, AnaCap Financial Partners, which gives Base access to retail funding. Base and Ruffler Bank are in the process of merging their operations to create a strongly capitalised business which is ideally positioned to provide a competitive range of property and asset finance facilities to small and medium sized businesses throughout the country.

“Base’s return to the market is a good sign for the commercial finance industry,” said Whitaker. “Because they’re not the biggest player, the amount they lend is unlikely to kickstart everything else, but I think it will increase confidence throughout the market.

Mark Stephens, chief executive at Base, said: “We’re delighted to be back in the commercial mortgage market once again, but are very mindful that we need to maintain a tight control over both business quality and volumes.”

The title insurance will apply to all new applications and will allow remortgage cases to typically be completed within 48 hours of the application being received.

John Maclean, Link Lending’s managing director, explained: “Typically, short term/ bridging loans for remortgage purposes are sought to fill the gap between the date when the new funding is needed and the point where a long term mortgage deal can be arranged.

“This means that the short-term remortgage funding – whether for commercial or residential purposes – is often needed at very short notice. Now, with title insurance included as standard within our legal fee structure, borrowers can be confident that their remortgage application will be fast-tracked and that funds will normally be available within two working days.

“Title insurance protects the lender against any defects in the title of the property included in the scheme and can dramatically shorten the time required in the legal process. The title insurance we now have in place gives us the confidence we need to proceed to a very speedy decision and advance of funds.”

“We are delighted that our association with Link Lending allows us to further expand our title insurance offerings in the remortgage market,” said Jonathan Woodcraft, head of sales and marketing, Stewart Title Ltd., UK. “Title insurance expedites the entire remortgage process while mitigating the risks involved so both parties are protected from the unexpected.”