Too many small and medium-sized enterprises (SME) are unable to access funding and are relying on unsustainable forms of finance such as loans from families and friends, according to new research from leading independent business finance specialist Bibby Financial Services (BFS).
The findings reveal fewer and fewer small and medium-sized businesses are now applying for external funding – just 31 per cent did so in the past 12 months, which suggests a greater variety of funding options are needed to help support businesses.
With this in mind Bibby Financial Services has launched Flexidraft, a new flexible funding facility for businesses with a turnover of up to £1million, designed to address the shortfall in lending to the small business community.
The survey of 1000 business managers and directors reveals that 29 per cent were unsuccessful in their funding applications or were put off applying because they thought they would be rejected. A further 14 per cent reported receiving less than they needed to fulfil their business plans.
As a result, businesses are becoming increasingly reliant on loans from family and friends, with one in five small businesses turning to them for support, rather than looking at alternative business funding sources.
Recognising the need for more sustainable streams of finance, Bibby Financial Services new Flexidraft funding solution will act as a viable alternative to the bank overdraft, provding firms with quick access to the cash they need to run and grow their business.
Validating the need for such a facility, recent figures released by the Bank of England reveal that lending by banks and building societies in the three months to May fell by approximately £3 billion , while the Organisation for Economic Co-operation and Development recently announced it is so concerned about the lack of access to credit for SMEs that it is to produce an annual report on the issue .
Andrew Dixon, Bibby Financial Services new product director, said: “Businesses reliance on the banks for finance has reached crisis point as they are finding their ability to survive and grow severely restricted by a lack of funding.
“Small and medium-sized businesses need more and faster support from traditional and alternative lenders. The Government’s newly launched ‘Funding for Lending’ scheme will hopefully lead to an increase in bank lending to small businesses, but ultimately it still fails to address the issue that SMEs have become too reliant on the banks.
“New and innovative solutions such as Flexidraft will be vital to ease the pressure on the banks and traditional lending methods.
“In being an independent funding provider we are able to deliver flexible solutions such as Flexidraft, which make a significant difference to small and medium-sized businesses which have been overlooked.
“Operating as a trusted choice for companies of all sizes and sectors for almost three decades, we remain committed to championing the cause of SMEs in the UK.”
Alternative cash flow funding solutions, such as Flexidraft, are designed to provide a straightforward method for businesses owners to obtain funding.
The bank will continue to provide support for businesses which trade or aspire to trade internationally and commits to providing lending facilities to support business growth and job creation.
The bank has confirmed that it met its Merlin lending intentions in 2011, which were agreed with the UK Government, exceeding the full year target to provide £38.8 billion of lending facilities to UK business customers and supplying gross new lending facilities of more than £11.7bn to Small and Medium-sized Enterprises (SMEs).
Having met its Merlin intentions in 2011, HSBC plans to lend even more to SMEs in 2012, providing there is suitable demand. In addition, to reinforce the bank’s strategy to be the leading international trade and business bank, HSBC will further support UK businesses by committing to:
- Recruit around 50 additional International Commercial Managers, ensuring customers involved in overseas trade are fully supported. This will bring the total number of International Commercial Managers to 180;
- Support export trade to the tune of £7 billion through our Trade Finance capabilities;
- Look to manage £30 billion of invoices for customers trading within the UK or internationally, providing critical working capital for these customers;
- Look to approve at least 80 per cent of applications for finance from SMEs; and
- Extend the availability of HSBC’s International Business Overdraft, which offers reduced interest rate for each overseas country a small business is trading with, up to a maximum discount of three per cent for the first 12 months.
Jacques-Emmanuel Blanchet, head of commercial banking UK at HSBC, said: “HSBC is committed to supporting UK business. In 2011, the Merlin intentions gave focus to SME lending, and we continued to enhance our support, launching new innovative products and holding hundreds of events across the UK and the world, to encourage UK businesses to share their knowledge and develop long term relationships internationally.
“In 2012 we will further increase our support for SMEs looking to grow and internationalise, across all sectors and all regions. Many of our customers are experiencing growth by trading in new markets and we are very well placed to support this, through our growing team of specialist International commercial managers and HSBC’s enviable global network, to give UK businesses the best chance of success.”
“The news from Punch Taverns reflects a growing trend we’ve witnessed over the last couple of years. At Business Debtline we have recently seen a significant increase in the number of calls received from pub landlords with concerns over keeping their business afloat. Along with small construction companies, pubs are the type of business we receive most calls from.
“The common problems many pub landlords face are numerous, and it is worth noting the seasonal trend in people going out and enjoying their local pub tends to mean the Winter and early Spring months are particularly difficult. However we have observed a growing issue that many franchised pubs, including properties leased by Punch Taverns, are tied in to contracts with breweries charging artificially high costs for beer. Pubs often face fines for sourcing beer elsewhere, even though it can be cheaper to buy it from a local supermarket. In our experience, this squeezes their margins, meaning they struggle to turn a profit by dealing solely in drinks and not food, suggesting the trend toward pubs focusing more on food is not so much a cultural issue, as a contractual one.
Additionally, we frequently find breweries to be reluctant to negotiate with struggling landlords. Often, measures such as a short term reduction on rent or offering time to pay off beer arrears can mean the difference between survival or going bust. Our experience is that small business creditors with a more progressive attitude toward debt repayment tend to fair better in the long run.
“Any landlord concerned about their finances should contact Business Debtline for free, independent advice on 0800 197 6026.”
Business Debtline Golden Rules on dealing with debt:
- Do not ignore the problem! This situation will not go away and could make matters worse.
- Ensure that you are claiming all the benefits and tax credits you are entitled to. If you are unsure about the benefits you may be able to claim call us for advice.
- Be sure to deal with your priority debts first. These are the debts that have the worst sanctions if you do not pay them.
- Stay in contact with your creditors. It is important that you let your creditors know you are having difficulty ensure that they know exactly what is happening as this can help when you are ready to negotiate with them.
- Check to see if you have any Payment Protection Insurance (PPI). This may cover your payments if you are out of work due to illness or redundancy
- Work out your budget and stick to it.
- Never offer more money than you can realistically afford. Working out your budget will help you to determine how much you can offer to each of your creditors. It is much better to pay a small amount regularly than commit to a payment arrangement that you cannot realistically afford and are; likely to default on.
- Treat all of your creditors fairly. Do not be tempted to pay some creditors more than others or to negotiate a reduced payment with some creditors and not others. This can hinder any negotiations that you are currently making with your creditors and in some instances make them more aggressive in their approach.
- Persevere with your offers and stick to your guns. Even if your creditors are not being helpful or are continuously refusing your offers. Start paying what you have offered or you can keep the money aside so you can offer a lump sum at a later date.
- Think carefully before taking out further credit to clear your debts. Always seek advice before choosing this option as you could end up paying a higher interest rate or having to secure the debt to your home or business premises.
- Keep copies of all paperwork, letters and/or receipts. These are important for future reference and can help you complete your tax return.
Lloyds Banking Group has launched a new 2012 Charter, setting out a series of commitments to help small and medium sized businesses grow as the recovery gains momentum.
The new Charter covers business customers across both Lloyds TSB and Bank of Scotland and includes measures to help 300,000 new SMEs start up by 2012. It sets out a range of commitments to help stimulate demand and boost access to finance for SMEs; provide guidance to help businesses grow successfully; and clarify the terms on which the Group will lend to its customers.
The initiative is part of a strategy to build relationships with customers through the economic cycle – fulfilling a promise to support businesses during downturns and upturns. They are intended to help provide confidence and clarity to businesses as the economy starts to emerge from recession and they build on the promises made by the Group in this year’s Charter for small firms.
The measures in the new 2012 Charter will benefit all of the Group’s business customers, with a turnover up to £15 million.
The bank has promised to:
- Help encourage and support 300,000 new businesses to start up by 2012.
- Run a programme of 200 nationwide seminars every year for the next three years, to provide expert guidance and support for SMEs on starting up, employment, exporting, bidding for 2012 contracts, sustainability and finance.
- Provide online advice and support to business customers on issues including starting up, sustainability, procurement opportunities and finance.
- Meet every reasonable request for competitive commercially-priced finance (whether short-term or long-term) from viable business customers.
- Not change the availability of overdrafts during the period of a customer’s agreement, as long as their accounts are kept within agreed terms and limits.
- Support any viable business through temporary difficulties and into the recovery.
- The price of existing loans or renewed overdrafts will reflect the cost of funding. The margin Lloyds charges over our cost of funding will only increase where there has been a material increase in risk (subject to a minimum 1.5 per cent over the cost of its funds). The bank will be transparent about pricing
- Fees will be competitively priced. And arrangement fees on loans and overdrafts will not be greater than 1.5 per cent of the overall value of the facility.
John Maltby, managing director, commercial, Lloyds Banking Group, said: “Just as businesses needed support during the depths of the downturn, it is critical that we give them the right guidance and help them grow as the momentum of recovery starts to build.
“There is no doubt that business optimism is the foundation of any economic upturn and through the pledges we have set out today, to encourage enterprise, boost access to finance and provide clearer and fairer pricing, we hope to give businesses across the country the confidence they need to grow and lead the UK out of recession.”
Professor Russel Griggs, chairman, SME Council, Confederation of British Industry, said: “Understanding how credit is provided is fundamental to all SMEs. Anything that increases that transparency and understanding is welcome because SMEs can then work more closely with banks to change or further enhance their business and address any concerns. This new customer charter is a welcome step and will also hopefully encourage more dialogue between banks and SMEs as well as understanding of each others challenges and opportunities.”
They may be giving a pretty good impression of not wanting your custom, but if you have, or are starting a business, there will be plenty of banks offering you incentives to join them. Ideally, of course, a banking relationship should be for the long term – as your bank gets to know and understand more about your business it should be in a position to provide you with the services you need when you need them.
But that doesn’t mean you have to stay loyal – if you can get a better deal elsewhere, you should move on. Of course, it’s always worth negotiating with your existing provider first, but in a competitive market you need to be sure you are getting the most for your money.
Most banks have special deals and incentives for new customers. Naturally, these offers are aimed mainly at new businesses but in most cases an existing company will be welcomed with a similar deal. And while the start up incentives can prove to be valuable, remember that it’s in the long term that the true worth of your bank will be tested.
When looking at the bank accounts on offer, here are the factors you need to consider:
With the vast majority of business current accounts, your bank will levy transaction charges. So every time you pay in or out a cheque, or a direct debit, or cash, a fee will be charged. These fees vary dramatically – it’s generally less expensive to pay a bill electronically than by cheque, for example – and they also vary from bank to bank. So if you’re a mainly cash-based business, for example, then you’re going to need to choose the bank that has the lowest fees for handling cash.
With most banks, new account holders – whether new businesses or companies switching from a rival – will be given a period of free banking. This almost always is just the basic transaction costs – money coming in and money out – you’re not going to get international payments or interest-free overdrafts.
Bear in mind also that some accounts levy a monthly management charge as well. While the idea of having to pay for an account when you could go to a rival for nothing may seem strange, bear in mind that the charge will probably give you discounts on your daily banking costs, which could end up an even bigger saving.
It’s important here to work out what sort of customer you’re going to be. If you think you’ll mostly be in credit, you’re going to want to look for the bank that pays the best interest. If, on the other hand, you’re running your business from your overdraft, then it’s the lowest amount of interest you’ll pay that’s the most important. It’s unlikely that the same bank will offer both, so choose wisely.
Some banks offer a ‘sweep’ facility’ on current accounts. This means that if your balance rises above a certain figure at any point, the funds above that figure will automatically be swept into a separate deposit account that pays higher interest. Then, when money starts to dwindle, the bank will automatically again place funds back into the main account from the savings.
If you’re a start up you’re going to have to really prove the potential of your business before you are granted a respectable overdraft and even if you’re established questions will be asked. At the moment, banks are reining in their overdraft lending and you’ll have to be a very good customer to get a good deal.
There are signs, however, that some institutions are starting to open up once again, so it’s worth phoning around to see what’s on offer.
Again, this will depend on the kind of banking you need. If you’re taking lots of cash or cheque payments, you’re going to need a branch close by where you can pay in your takings. On the other hand, if most of your income comes in the form of bank transfers, this is far less important. Virtually every bank now offers online banking and almost all offer a telephone service too, although their hours and service offerings vary. Banking online wherever possible is usually the cheapest option.
At a glance: Bank incentives
(Last updated 23 September 2009 and, where applicable, we have given the incentives applicable to the accounts with the lowest turnover requirement and where there is no initial monthly fee)
- Free day-to day banking for life
- Interest of six per cent paid on credit balances (limited)
- Free banking for life up to £1m turnover
- UK call centre 24/7 telephone banking
- Free legal and tax advice
- Use the Post Office for payments
- Other business services such as insurance, loans and online advice
- 12 months free banking
- No overdraft arrangement fee for first 12 months
- Barclays (Business start up package)
- 12 months free banking
- Support outside office hours
- Access to seminars
- Free credit management tool
- Free data storage
- 18 months free banking
- 12 month fee-free business credit card
- £75 Google adwords voucher
- £50 discount on web build package
- Access to business resource directory
- 18 months free banking (six months for account switching)
- Free Sage Business software and support
- Free business guides
- Two years free banking
- Free online start-up course
- Free business planning software
- Free guides