The Chancellor has launched the National Loan Guarantee Scheme (NLGS), helping smaller businesses across the UK (with an annual group turnover of up to £50 million) access cheaper finance.

The Government will provide up to £20 billion of government guarantees on unsecured borrowing by banks, enabling them to borrow at a cheaper rate. Around £5 billion in guarantees will be made available in the first tranche.

Participating banks will pass on the entire benefit that they receive from the guarantees to smaller businesses across the UK through cheaper loans. Businesses that take out an NLGS loan will receive a discount of one percentage point compared to the interest rate that they would otherwise have received from that bank outside the scheme.

The banks currently participating in the scheme are: Barclays, Santander, Lloyds and RBS. Aldermore have also agreed, in principle, to join the scheme.

The Chancellor said: “The Government promised to help small businesses get access to lower interest rates. Today, we deliver on that promise with a nationwide scheme. It’s only because we’ve earned credibility with our deficit reduction plan that we have low interest rates, and it’s only because of this scheme that we can pass the benefits of those low rates onto businesses.”

The Government is not guaranteeing individual loans to businesses and thus not taking on the credit risk of loans made under the scheme. The banks retain the credit risk and therefore their usual lending and credit parameters will apply.

Four new lenders have been accredited to offer loans to small businesses under the Enterprise Finance Guarantee (EFG) scheme.

The EFG gives vital funding to small and medium-sized enterprises (SMEs) that lack the collateral or credit history to secure a normal bank loan.

The four new accredited lenders are:

• Metro Bank
• Hull Business Development Fund
• Black Country Reinvestment Society
• MSIF (providing finance to SMEs in Merseyside)

The Government has also announced a new accreditation round which will open on 1 March 2012, and is inviting lenders to apply for accreditation to offer EFG loans.

Business and Enterprise Minister Mark Prisk said: “If businesses are to start, thrive and grow they must have access to the finance they need, and the Enterprise Finance Guarantee gives more firms the chance to get vital funding. These four new lenders will help widen access to this successful scheme even further.

“The Government has committed to guaranteeing £2 billion of loans over the four years to April 2015, and we are now opening another accreditation round to encourage even more lenders to offer these loans. The scheme has already supported more than 16,000 businesses and we can support many more.”

EFG is now available to businesses with up to £41m annual turnover and seeking up to £1m worth of loans, subject to eligibility.

As the Bank of England warns about tightening wholesale finance conditions, data from online invoice trading platform MarketInvoice has indicated that larger companies have now started to look for alternative means of short term working capital funding. The online invoice trading platform for growing SMEs, saw a record month in December 2011 with over £1 million channelled to 50 registered companies. This takes the total volume of finance channelled to SMEs via its online platform to over £3.8 million, just 11 months after MarketInvoice launched in February 2011.

Over 100 invoice auctions have been successfully funded since launch, with capital coming from institutional investors, family offices, asset managers and high net worth individuals. The largest single auction of £334,000 was successfully closed in the last month, with the funds for this auction being provided by a pool of nine professional investors simultaneously.

SMEs are still finding it difficult to raise working capital in the current economic climate, with last week’s Bank of England Credit Conditions Survey indicating that in the three months to December 2011 the availability of credit to small and large businesses largely remained unchanged from the previous quarter. The report also revealed that where traditional funding is available to SMEs, it is increasingly expensive and its terms are onerous which results in it being less effective as a tool to help owners run and grow their businesses during these tough economic times. Against this backdrop, in the last three months alone, data from MarketInvoice has indicated an in increase in the average size of companies wanting to make use of the invoice auction platform as a complement to traditional funding lines. These businesses come from a wide range of sectors, and, with revenues between £10 and £25 million, are all seeking balanced growth out of the recessionary environment. .

Anil Stocker, Co-founder and Director of MarketInvoice says: “Invoice auction volume is growing hugely at the moment, and the companies that are looking for alternative forms of short term funding are coming from diverse UK business sectors, including services, manufacturing, and construction, as well as many UK exporters. Interestingly, over the last few months we have seen a shift in the size of companies looking for short term funding, with an increasing number of larger companies looking to raise flexible capital when they most need it. With traditional methods looking increasingly expensive and onerous, and smaller businesses also struggling with late payments as their customers often now take between 60 to 90 days to pay their invoices, we expect this trend to continue well into 2012.”

“Importantly, the Coalition Government is beginning to take notice of next generation finance platforms such as MarketInvoice with Vince Cable recently announcing an industry-led taskforce which will examine the challenges business owners face in diversifying their finance sources, especially in looking beyond traditional bank products.”

The Co-operative Bank is to expand its network of banking centres across the country.

The bank has opened a new Corporate Banking Centre in St Albans and another will open in Guildford before the end of year, taking the overall number nationwide to 22. This follows a doubling of the centres from 10 to 20 since 2007.  

The expansion is a key part of its intention to grow its relationship-based approach to commercial banking and it plans to increase its presence further in coming years.

Since 2007, the bank’s commercial lending balances have grown by more than 40 per cent, including £500m specifically to fund renewable energy sector projects.

Deposits from business customers have more than quadrupled from £1.4 billion in 2007 to £6.7 billion by June 2011. 

Keith Alderson, managing director of corporate and business banking at The Co-operative Bank, said: “Throughout a period when many other banks have scaled back support to business customers, we have not just maintained our support but stepped up our commitment.

“The rate of growth in our customer numbers, lending and deposits shows how the Bank is now challenging traditional providers.  A focus on high levels of service, built on developing long-term supportive relationships is resonating with businesses at a time when they really need support from their bank.

“We are continuing to invest to improve our future capability and scale so that we can offer an even better service to a wider range of customers.

“At this time, more than any other, businesses need guidance, advice and the support of their bank whether they are seeking new opportunities to grow or dealing with challenging economic environment.

“And as part of The Co-operative Group we are in a unique position in the market to offer customers access to a broad range of services and expertise spanning sectors from legal services to pharmaceutical care.”

 

Following the credit easing initiatives announced in last week’s Autumn Statement, new research from borro reveals that small business owners have been locked in a capital battle which has resulted in lost opportunities to grow their business. 
Almost a quarter of SME owners (24 per cent) say they have missed out on a growth opportunity due to a lack of accessible finance. One in 10 (11 per cent) small business owners have also said that the inability to raise cash has even made them consider closing their business.

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.”