Research from alternative lender Nucleus Commercial Finance shows that healthy construction firms desperate for cash to invest and grow were being turned away from their banks or offered loans at unacceptably high interest rates.
At the same time, it found that one bank was charging a failing customer interest of only 0.2 per cent of its turnover, in effect artificially keeping that company afloat. The net result is that other firms would most likely have had to accept higher rates to make up for the loss, or may have been refused a loan altogether.
“The Government is long on talk but short on action,” said Chirag Shah, managing director of Nucleus Commercial Finance. “On the one hand it talks about the need to encourage alternative lenders such as Nucleus to step up to the plate; on the other, all of its actions are focused around the dominant High Street lenders who are the ones responsible for the current mess.
“SMEs, and especially SMEs in theconstruction sector, require a different kind of capital that requires different thinking and a different approach. They are being turned away from the High Street because of the folly of previous lending decisions and are paying the price for other people’s mistakes.”
Entrepreneurs receiving loans and support from The Start-Up Loans Company will now also be offered a cost-effective way to take card payments and grow their business, backed-up by first rate customer support through WorldPay’s Pay As You Go (PAYG) Card Acceptance Service.
Geraldine Wilson, managing director, Micro Merchants at WorldPay, commented: “89 per cent of adults in the UK have at least one debit or credit card and one in three UK consumers carry less than £5 cash. This means that businesses which are still unable to accept card payments considerably risk losing out on custom.”
WorldPay PAYG allows sole traders and small businesses in mobile professions (such as mobile hairdressers, plumbers and photographers), who would traditionally need to rely on cash, cheque or bank transfer to quickly, easily and cost-effectively take card payments using their smartphone. The service is specifically designed for sole traders and small businesses with 1 to 5 employees and has no minimum commitments.
James Caan, entrepreneur and chairman of The Start-Up Loans Company, commented: “The Start-Up Loans Company was created to provide young entrepreneurs all the support and expertise they need when it comes to setting up their own businesses. We’re continually looking to partner with innovative businesses that can help entrepreneurs to increase their chances of success and improve the service they offer their customers. WorldPay is a great example of a large enterprise that recognises the importance of entrepreneurs and small businesses, as well as understanding the challenges they face. We’re looking forward to being able to offer this additional service and help even more young entrepreneurs succeed in building their own businesses.”
In a new survey, conducted by commercial finance broker Touch Financial, almost two thirds (59 per cent) of businesses questioned had applied for additional funding, such as a bank loan or an overdraft, at some time in the past six months. Incredibly, almost the same number (55 per cent) had seen their application declined.
In addition, a third of those refused (31 per cent) were given no reason by their bank as to why their application for finance had been unsuccessful. Furthermore, four in five (80 per cent) of those businesses refused bank funding were not given any information on alternative sources of funding.
Touch Financial commissioned the survey to expose the current absence of adequate funding provision for SMEs, and the impact on business confidence. The results have confirmed that an overwhelming majority of small businesses do not feel supported by the UK banks, while almost all agree that the Government could and should be doing more to help.
Perhaps unsurprisingly, in answer to the question ‘Do you believe that banks are supporting small businesses?’ more than four in five (81 per cent) of businesses responded ‘No’. Simon Carter, director of Touch Financial, is concerned that the help that the Government has promised has not been forthcoming: “Any business, regardless of size or sector, should be given access to finance, if not through ‘traditional’ bank lending, then via a number of alternative funding solutions that are available,” he says.
When asked ‘Is the Government doing enough to support small businesses?’ only two per cent responded ‘Yes’; more than half (56 per cent) of respondents answered ‘No’ and the remaining 46 per cent answered ‘Could do better’. Moreover, when asked about their awareness of a number of Government and bank-led initiatives, more than two in five (42 per cent) had never heard of any of them; the highest awareness was for Start Up Loans, which only a third (33 per cent) of respondents had come across.
“Small businesses simply aren’t getting the information and the support that they need if they are to be the primary engine for growth as the Government has suggested,” said Carter. “SMEs are in danger of being left up the proverbial creek and being told there are no more paddles.”
Cash-strapped British businesses have declared their support for business minister Michael Fallon’s proposals to name and shame the members of the FTSE 350 refusing to sign up to the Prompt Payment Code.
Sixty-nine per cent of business owners and finance directors questioned in Hilton-Baird Collection Services’ annual Late Payment Survey believed Fallon was doing the right thing in threatening to disclose the names of those ignoring repeated requests to join the code.
This support comes after their businesses had to wait an average of 21 days beyond agreed credit terms to be paid by customers during 2012, according to the research conducted by the leading debt collection agency. This represents an increase of four days from 2011 and highlights the escalating problems businesses are facing with regards to getting paid on time.
Thirteen per cent of businesses said they were forced to write off more than five per cent of their turnover over the past 12 months, with 38 per cent classifying over 10 per cent of their debtor books as more than 90 days old.
Managing director of Hilton-Baird Collection Services, Alex Hilton-Baird, commented: “Businesses are firmly behind Michael Fallon’s attempts to encourage the country’s largest firms to improve their payment performance. Whether this will have any effect remains to be seen, however, as it isn’t just large corporates that are culpable. Late payment is occurring right the way through the supply chain.
“These numbers are simply unmanageable for the vast majority of businesses, particularly when you take into consideration the range of other pressures on their cash flows at present. In many cases businesses are having to wait more than 60 days, sometimes more, to be paid after providing goods or services. Given this, it is obvious why the economy is caught in a state of flux.
“It is absolutely essential that businesses of all sizes use the most appropriate credit management strategies in the coming months to safeguard their cash flows against this critical problem.”
UK SMEs face an average seven-week wait for invoices to be paid, according to new statistics from Clydesdale and Yorkshire Banks. Not only does this put pressure on cash flow it can also threaten the survival of thousands of SMEs across the UK.
In a bid to support small businesses facing invoice delays, Clydesdale and Yorkshire Banks are ring-fencing £100 million for cash flow finance from their recently launched £1 billion Business Expansion Fund.
The £100 million of additional invoice finance funding is now available to both new and existing customers through the Bank’s Confidential Invoice Discounting service.
Often referred to as “cash flow finance”, invoice finance allows businesses to access up to 85 per cent of an invoice’s value as soon as it is issued, rather than wait for it to be settled.
In the last year, the banks have seen businesses increasingly looking to strengthen their own invoicing and credit control procedures using invoice finance and credit protection products.
Martin Rothera, head of invoice finance at Clydesdale and Yorkshire Banks, said: “Underlining our enduring commitment to the invoice finance market, this £100 million of additional funding will provide real support for many businesses.
“Late payments can put immense pressure on small businesses as cash flow dries up, leading to pressure on their ability to pay their own bills.
“Providing an invoice finance service which suits new and existing customers is a key part of our support for UK businesses, particularly those which are working harder than ever to compete in some very challenging economic conditions.
“From our research we know that cash flow and invoices being paid on time are still a primary concerns for SMEs. Cash flow is the lifeblood of a business and invoice finance is an extremely useful tool for SME owners. It’s something that more businesses could benefit from accessing.”