Tag: business lending

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Wednesday will be an interesting day for small businesses

 

Results of a survey into lending to small businesses are due to be published tomorrow (Wednesday) and are expected to prove an eye-opener.

The six-month survey, carried out by the British Chambers of Commerce (BCC) and Federation of Small Businesses (FSB) at the behest of Chancellor George Osborne, is widely thought to show that small businesses continue to feel excluded by the banks from lending, despite all the exhortations of the Chancellor and Treasury.

Bank of England figures have, in any case, already indicated that business lending continued to fall in the three months to February 2014 down by £500 million, following a reduction of £3.3 billion in the preceding three months.

Publication of the survey will coincide with the launch of a joint BCC/FSB website called Business Banking Insight (BBI), which is expected to allow small businesses to rate their banks’ performance on services and on understanding their businesses.

It is expected to give small businesses the information they need to compare offerings by banks and by alternative finance providers.

While it may be, as reported in the weekend’s Business Telegraph, that the Treasury will urge banks to increase competition in lending to small businesses, is it likely that bank lending will rise, given the lack of security for new loans and regulators’ requirements for higher capital reserves?

The matter for real concern should be existing loans and the impact on borrowers when interest rates rise.

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Banks, Lenders & Investors Cash Flow & Forecasting General Rescue, Restructuring & Recovery Turnaround

From little acorns……..

 

Our regular readers will know that we continue to liberally apply a pinch of salt to reports on the solidity of the much-heralded economic recovery for several reasons.

Firstly, most national news emanates from London and there is still a great gulf between the capital and the rest of the country. Much of London’s optimism is down to the enormous rise in the value of property which has contributed to London home owners feeling wealthier.

Secondly, a little-noticed report in late April in the Daily Telegraph noted the latest data from the Bank of England’s quarterly report showing that business lending, especially to smaller and medium-sized businesses, has continued to decline for the sixth successive quarter.

Thirdly, there is the evidence of our own eyes and ears. We are hearing that small and micro businesses are still facing tough trading conditions. Most are having to work hard for the money they make as well as dealing with continued uncertainty and experiencing the frustration of a long wait for the decision on every contract they pitch for.

Finally, the greatest impediment to recovery and growth remains a fear of interest rates. While they will inevitably rise, the concerns are threefold: 1. the ability to service them, 2. the impact on consumer spending and 3. whether banks and other secured lenders will call in their loans like they have in the recovery phase after previous recessions.

Interestingly, David Boyle, writing in the Business Guardian this week points out that talk of rebalancing the economy (from London to the regions and from financial to manufacturing sectors) seems to have morphed into little more than reducing the trade deficit.

He argues that far more attention needs to be paid to putting money into what he calls “ultra-micro-projects” perhaps by using existing resources such as waste land, unoccupied people and buildings for innovative small businesses that would bring money into the community.

It may not be glamorous, nor is it attractive to the policy makers, but given that the so-called recovery is taking place in a situation where there is still a large amount of business and consumer debt perhaps his idea has some merit?

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Banks, Lenders & Investors General Insolvency Rescue, Restructuring & Recovery Turnaround

Is another bank mis-selling scandal brewing?

 

The full extent of the banks’ questionable behaviour following the 2008 crash has seemingly not yet played out as suggestions of yet another possible mis-selling activity surface.

Many SMEs are still awaiting compensation after being mis-sold insurance in the form of hedging products to protect them from potential interest rate rises.  Libor rate rigging is still under investigation and the recently-published Tomlinson report has prompted Business Secretary Vince Cable to refer RBS’ approach to dealing with companies in financial difficulty for investigation by the Financial Conduct Authority and the Prudential Regulation Authority.

Mr Cable is plainly going to be an even busier man following recent revelations in the Sunday Mail, the FT and the Times, that banks may also have been taking advantage of the Government’s five year-old Enterprise Finance Guarantee (EFG) scheme whereby they may have sought to repair their balance sheets at their SME clients’ expense.

Reportedly some SMEs have had their overdrafts cancelled by their banks who have then offered loans under the EFG scheme. The benefit for banks is that EFG loans do not require the same level of reserve capital as overdrafts but it is not clear whether this was the reason behind the withdrawal of overdrafts.

It seems that many banks have not fully explained the terms of an EFG loan.  Loans under the EFG scheme are intended for businesses that do not have sufficient assets or track record for a conventional loan where the scheme guarantees the bank 75% of any loans should the borrower’s business fail.

Unfortunately, many SMEs appear to have been given the idea that should they fail they would only be liable for repayment of 25% of the outstanding debt.  In fact they are liable for the full amount and the banks get the 75% from the Government ONLY after they have exhausted the recovery terms of the EFG loan which require security over the business assets and personal guarantees from director/shareholders. As such the government only pays out under the scheme after the company is formally declared insolvent and the guarantors are made bankrupt.

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

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.

Categories
Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Relying on consumers for restored economic growth is madness

Moderate improvements in economic activity, upwardly revised growth forecasts for the rest of 2013 and now, Bank of England figures showing increased lending to small businesses in June are to be welcomed.
Certainly coupled with a few sporting triumphs and some hot, sunny days this has all been seen as good news by politicians and some media commentators.
But look a little more closely and actually many of the figures given are still well below pre-2008 levels. In the case of SME borrowing records only began in 2011 and lending has been falling since 2009. SME borrowing may have risen a little in June but compared with a year earlier according to the BoE it is still declining, by 3.3% on the same period last year. One monthly swallow does not make a summer.
Sensible businesses are still watching their cash flow, consumer debt may be falling but is still believed to be unsustainably high, yet everyone seems to be jumping on the optimism bandwagon. Most recently the EU’s Gfk/NOP indicator is suggesting that consumer sentiment will continue to pick up.
Haven’t we been here before?  As the Telegraph’s City AM editor Allister Heath pointed out a week or so back, lessons have not been learned if everyone is relying on credit-fuelled consumer-led growth via increased activity in the housing market and rising house prices, fuelled by the Help to Buy scheme.
Isn’t it also true that our economic difficulties are where they are precisely because of a house price bubble and too much credit pre-2008? Plainly there are still lessons not yet learned.

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

When will businesses invest in the future?

It is hardly a closely-guarded secret that the UK’s largest companies are holding onto a large pile of cash, estimated to be more than £300 billion.
While the Government is expecting recovery from the 2008 economic crisis to come from the private sector, the latter remains focused on minimising tax bills and maximising short term rewards to shareholders and CEOs, while avoiding risky investment at all costs.
One of the major complaints among businesses at all levels is that they are finding it hard to recruit the skilled and educated people they need. At the same time investment in research and development is dwindling.
There can be no future reward without taking some risks and thinking for the longer term but businesses also have to recognise that their activities are also made possible because of the benefits they derive from a combination of the physical infrastructure and education system, the so-called public goods that are often taken for granted.
Perhaps it is about time that businesses realised that if they want to grow and develop and if they want a supply of educated people, they need to take some responsibility by unlocking some of their capital to support innovative new enterprises, to invest in Research and Development in our universities and in their own companies and to help the existing and future workforce to acquire the skills companies say are in short supply.
This may require a degree of restructuring of companies’ own operations and at the very least restructuring their current short term, risk-averse thinking to enable investment over a longer period.
While the Government is considering closing the loopholes that make tax avoidance possible it could perhaps also consider a tax on unused capital sitting on company balance sheets to stimulate some investment in the economic future of UK Plc.

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