Tag: Bank Lending

How can smaller businesses fund growth in the economic upturn?

Post author By rescue
Post date June 17, 2014
No Comments on How can smaller businesses fund growth in the economic upturn?

A new report by the Credit Management Research Centre and Taulia has revealed that UK companies have been relying heavily on trade credit.

It is also well known that traditional bank lending to SMEs declined by 20% in the last 12 months.

This is despite bank claims that they have plenty of cash to lend and a perception that they are declining loan applications. More realistically the decline in bank lending is down to loan criteria being tightened and the fact that credit worthy companies have been paying down loans instead of funding growth.

So how are small businesses going to fund the expected increase in business and orders that come with economic recovery from recession?

If a company accepts orders without being able to finance them it runs the risk of insolvency through overtrading, which is why so many commentators point out that most insolvencies occur during the upturn after a recession.

Given that many good businesses have used the recession to pay down debt, it can be assumed that their balance sheets have improved and therefore they will be easily able to raise finance for growth from the banks.

However there are a lot of SMEs that do not have a strong enough balance sheet to justify traditional funding. Where these sources are not available they are looking to fund growth using alternative sources of finance.

In the past such sources were myriad, such as from friends and family, negotiating deals with well funded suppliers, early payment terms from customers and even credit cards, but the banks remained dominant. Over the past 20 years asset based lending has grown since it can advance more funds than the banks due to the specific pledge nature of its security. More recently we are seeing a new route to finance from peer-to-peer and crowd funding websites.

The website based sources appear attractive and are often easier for obtaining funding but they can incorporate obligations such as a personal guarantee for the loan from the directors.

In April 2014 the FCA (Financial Conduct Authority) introduced new rules on loan-based (money loaned) and investment-based (share subscription) crowd funding that require the lenders to carry a certain amount of capital, to be open about defining the risks and to have resolution procedures in place in case of the lending platform failing.

It is likely that the online funding platforms will become stricter and require more information from borrowers before making a decision, but if used wisely they offer a great source of funding to growing SMEs.

Tags Bank Lending, Credit management, crowd funding, funding for growth, Insolvency, overtrading, peer to peer lending, Small Business

Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

RBS – whitewash or exoneration?

Post author By Tony Groom
Post date May 1, 2014
No Comments on RBS – whitewash or exoneration?

The first of the investigations into behaviour by the Royal Bank of Scotland (RBS) following publication of the Tomlinson Report in November last year has found “no evidence” to back up the most serious allegations that the bank systematically put customers out of business.

Clifford Chance does not however completely exonerate RBS in its dealings with customers, only the allegation of a deliberate policy – a copy of the report is available at http://bit.ly/1ljINfK.

The report by the law firm Clifford Chance was commissioned by RBS after Tomlinson, adviser to the Department for Business, Innovation and Skills, investigated the behaviour of the RBS-owned turnaround unit, Global Restructuring Group (GRG).

His report accused GRG of systematically charging large fees to small businesses, thereby putting them out of business and generating profits for the bank.

While there is speculation that RBS could sue Mr Tomlinson for libel, for damage to the bank’s reputation, it is likely that RBS will wait for the FCA report before responding formally.

Given that Clifford Chance are a panel firm of advisers to RBS and the limited scope of their investigation, it will be interesting to see if their findings are supported by the FCA whose report is due to be released much later this year.

Tags bank behaviour, Bank Lending, small business lending, Turnaround

Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting General Turnaround

It’s all about getting the balance right if SMEs want to grow

Post author By Tony Groom
Post date January 14, 2014
No Comments on It’s all about getting the balance right if SMEs want to grow

There is a lot of optimism in the press and the New Year heralds confidence about the prospects for growth.

What does this mean for SMEs hoping to take advantage of the predicted improved trading conditions?

In a word: realism.

It requires deep knowledge of a business’s current financial position, specifically its current assets and liabilities, as these are crucial for funding growth.

If an SME is operating on very slender margins, or just about hanging on from month to month, it is unlikely to be able to take advantage of increasing orders without some additional finance and preferably not of the kind that relies on personal savings or support from friends and family, as a quarter of SMEs currently are, according to research by Bibby Financial Services.

SMEs will need to be mindful of two things when planning for growth. Firstly, it is looking increasingly likely that interest rates may start rising towards the end of 2014 which suggests that having a robust forecast will help assess the impact of interest rates before taking on more debt.

Secondly, there is as yet little evidence that lending to businesses is becoming any easier, especially loans from the banks or extended credit from suppliers which suggests that growth will need to be funded by either reserves or shareholders.

So an SME’s first step in planning for growth is to not only to know the current financial situation but to also have realistic forecasts that may need to be prepared with input from an external business advisor.

Tags Bank Lending, business advisor, business lending, Economic Growth, economic recovery, planning for growth, SMEs

Banks, Lenders & Investors Business Development & Marketing Factoring, Invoice Discounting & Asset Finance General

Is the Economic Recovery Being Imperilled by Banks’ Continued Failure to Lend to SMEs?

Post author By Tony Groom
Post date May 25, 2012
No Comments on Is the Economic Recovery Being Imperilled by Banks’ Continued Failure to Lend to SMEs?

Despite government rhetoric, evidence continues to pile up that the banks are still not lending to Small and Medium-sized Enterprises (SMEs).
We are hearing that when companies apply for any lending the banks are only considering loans or overdrafts secured on tangible assets, with most also demanding personal guarantees from the directors in addition.
Total net lending by the UK’s five main banks fell in 2011 and they missed their lending target to small firms, whose use of bank overdrafts and loans has also declined over the past two years.
The FSB reports that of 11,000 SMEs just one in 10 obtained a bank loan in 2011 and that 41% of applicants had been refused loans in the three months to February 2012. The FSB believes the UK banking system is not geared up to lower end loans of less than £25,000, because “there’s no money in it”.
Business Secretary Vince Cable has warned that recovery is being imperilled by the “yawning mismatch” between bank lending and SME demand for finance and at the end of April economists at Ernst and Young predicted that they expected lending to reduce further this year by 6.8 per cent, to £419 Billion.
Meanwhile invoice discounting and factoring have increased significantly, though banks are seemingly no longer offering these facilities, leaving the door open for independent companies such as Bibby, Close, Centric, SME, Ulitmate and the new British bank, Aldermore.
Are the banks struggling or are they simply withdrawing from the SME market?
We think the banks are being deceitful. Whatever the rhetoric, they are using PR tactics to report new loans, which are in fact not really new lending but the refinancing of existing facilities such as turning an overdraft into a term loan or a factoring facility.
This is piling even more pressure onto small businesses because there is a net decline in the flow of money into SMEs, and furthermore any new money is being provided at a very great cost in terms of fees and interest. While high rates of lending may be justified by the risk when it is unsecured, it is not justified when the loan is secured.
K2 would be very interested to hear from SMEs that have managed to secure a bank loan.

Tags Bank, Bank Finance, Bank Lending, Bank Loan, Bank Overdraft, Business Recovery, Business Restructuring, Corporate Recovery, factoring, Finance, Financial Difficulties, Funding, Invoice Discounting, Loan, Overdraft, Secured Assets, Secured Loan, Security, viable business