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

Gut feelings and fair weather advisers

A piece of research among business leaders carried out by the Economist Intelligence Unit recently found that nine out of 10 would be likely to rely on their gut feeling if presented with data that contradicted their intuition.
In a world that teems with business consultants offering guidance on best practice and must do’s of every shape and colour it can be difficult for the small business owner to know whose advice to trust, when to trust it and when to trust their own instincts.
It makes sense for start-ups and SME owners to take advantage of the wealth of support on offer particularly when they can’t afford to employ experienced executives or if they are looking for investment or finance.  However, it can be more tricky when the situation changes from optimism and doing well to one when plans are not working, or one when the business is running out of cash.
When optimism becomes a harsh reality, one reality is finding out about your advisers, most become unavailable, the more so when they are not being paid and the money is running out.
When as a business owner you are overcome with concern, have sleepless nights and are experiencing anxiety, you need advisers who can deal with reality. When running out of cash you need a business doctor to take a cold, hard look at the situation and at the opportunity so they can discuss your options for survival, for growth, or if necessary for closing down with dignity. The right advisers will have contacts for providing finance as well as having experience to help you deal with the issues that are causing you concern.
Most business owners know when they are being spun a line, when they are hearing what they want to hear but the courageous ones listen to their gut instinct while also employing advisers who will challenge them.

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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 Debt Collection & Credit Management Insolvency Rescue, Restructuring & Recovery Turnaround

Does the latest banking revelation have an impact on the insolvency profession?

The treatment of SMEs in the aftermath of the 2008 credit crunch by RBS, one of the UK’s two main lenders to small businesses has come under scrutiny this week.
An investigation, by businessman and government adviser Lawrence Tomlinson, has claimed that RBS may have “engineered” firms into RBS’s turnaround division Global Restructuring Group (GRG) so that RBS could generate enhanced revenue at the expense of their SME clients.
Tomlinson claims there was a “systematic abuse” of corporate clients by RBS that allowed them to charge significant fees before appointing administrators who immediately sold the clients’ business assets back to RBS’s property division West Register.
It is assumed that West Register has been required to generate its own profits for RBS by increasing the value of those assets it acquired from clients. This would suggest that the assets were bought at a very low value before they appreciated in value for the benefit of RBS.
The whole sorry saga is now being investigated by the Financial Conduct Authority and the Prudential Regulation Authority following a referral by Business Secretary Vince Cable.
While the focus has so far been on banks, the saga raises the question as to whether there has been a conflict of interests among some insolvency practitioners (IPs), who following an introduction by RBS to clients then sold the clients’ assets back to RBS under an Administration Pre-pack procedure.
While such realisations may have been legal the practice stinks and reminds me of the activities of HBOS’s Impaired Assets division in Reading which resulted in senior managers being charged with conspiracy to corrupt, fraudulent trading, money laundering and blackmail. Fortunately none of the IPs involved in that saga was charged, but it would seem that their role was not investigated.
All this suggests that the directors in these situations are not getting independent advice.
It would also seem there is a need to review the relationship between banks and their panel IPs?

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

Read the fine print

We are hearing stories of lenders applying enormously high rates of interest, as high as 59%, on asset-based loans to businesses or in one case, 26% per month.
It is possible that the influence of lenders like Wonga have persuaded people that rates up to 5000% for unsecured loans are the acceptable “new normal” and this has influenced the asset based lenders, especially for bridging or short-term finance, to significantly increase their rates or apply huge fees.
Some SMEs are desperate for money, perhaps because they want to take advantage of the improving economy to develop or more often due to creditor pressure, and as a consequence are neither thinking straight nor considering restructuring as an alternative when agreeing to such loans that are normally secured against personal assets.
While annual rates quoted on a loan may seem reasonable, it is only close scrutiny of the paperwork that reveals penal rates such as the example of 26% per month that may apply to a covenant breach, despite any security.
Our advice is to look very carefully at the detail when considering an asset-based bank loan and to shop around for alternative sources of finance.  There are plenty of options out there and you can find them in our free, downloadable guide:  http://www.k2finance.co.uk

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

Economic recovery and funding growth

A recent survey by the FSB reported that 47% of its members had been refused loans in the last three months to September and 56% felt that banks did not care about SMEs.
At the same time, the Chief Executive of the British Bankers’ Association warned that requiring banks to improve their leverage ratio (money lent out in relation to capital reserves) could “do more harm than good”. Contrast this with Sir John Vickers, who was involved in drawing up post-crisis reforms to the banking sector and his arguing that the suggested ratios are still way too low and risky.
And, banks are still facing an estimated £10 billion in potential payouts to businesses mis-sold interest rate protection and hedging products.
No wonder that banks aren’t lending to SMEs.
In the meantime large business are estimated to be sitting on £700 million of cash reserves in readiness for funding development and growth.
What are small businesses supposed to do?
Firstly, there are other sources of finance besides the banks and K2 has a free, comprehensive guide to the options. You can find it at http://www.k2finance.co.uk
Secondly, and more importantly given the prospect of over trading as the recovery gathers pace, now is the time to ensure that the business model is right to fund growth and avoid running out of cash.
Advice from restructuring professionals is not exclusive to when a company is insolvent.  Their experience and solutions can also be used to help SMEs grow.

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Banks, Lenders & Investors General Insolvency Interim Management & Executive Support Rescue, Restructuring & Recovery Turnaround

Turning around the economic juggernaut means restoring SMEs’ confidence

Business Secretary Vince Cable warned at the LibDem conference that rebuilding the economy was going to be a long process requiring investment in business, in research and in training people in the skills that will be needed in the future.
We are also told, repeatedly, that SMEs are the primary engine for the country’s growth.
The trouble is that SMEs’ confidence has been knocked for six over the last five years, not least because despite innumerable Government initiatives they have time and again been refused lending by the banks. The most recent figures on the Funding for Lending scheme published earlier this month showed that lending to businesses and consumers had fallen by £2.3 billion since June 2012.
Now the Federation of Small Businesses (FSB ) has produced research showing just how beleaguered SMEs are feeling with more than 56% of those polled believing that the banks just do not care about them and more than a third reporting sharply increased bank fees over the last year. Very few of those polled knew that it is possible to appeal against a bank’s refusal of a loan application.
Worse still only 37% of those polled were aware of alternative sources of lending, such as crowd funding. 
K2 has a comprehensive, free, downloadable guide to sources of business finance available at http://www.k2finance.co.uk . The FSB has also launched a guide, How to Get a Bank Loan, which also covers appealing against refusal, switching banks and other finance options.

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

Further evidence that a safe pare of hands is not enough for growth

Some new figures on attitudes to innovation from Price Waterhouse Cooper reinforce the point that growth will not come from being risk averse and hoarding cash.
In the UK the most innovative top fifth of companies grew 50% faster than the bottom fifth and, more alarmingly, the survey found that in the UK just 32% of companies regarded innovation as very important, compared with 46% of German and 59% of Chinese companies. Just 16% of UK companies planned to prioritise product innovation in the coming year compared with almost 33% globally.
Further proof, if it were needed, that, while it would of course be foolish to be complacent about economic recovery, the risk-taking, innovative manager is needed more at this point in the cycle than the risk-averse accountant.
 

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

Business pain in a recovering economy

There are two things happening that suggest that signs of economic recovery are believable, rather than government spin.
The first is the narrowing of the trade gap with a significant growth in exports in June and the second is a 10% rise in business insolvencies (compulsory and creditors’ voluntary insolvencies) in the quarter from April to June 2013 (3,978) compared with January to March (3,601).  However, there were actually slightly fewer insolvencies this year when compared with the same quarter in 2012.
Insolvencies generally do increase when an economy is coming out of recession because creditors normally start to lose patience and begin recovering debt when they can see signs of a rising market.
This time, however, I believe something else is going on.
Firstly, for more than two years now businesses have been focusing on paying down debt so why should creditors suddenly lose patience? Secondly, it may be that HMRC is taking a tougher line on collection of arrears now.
But most importantly now that the owners and directors of businesses can see the future more clearly, and there is greater optimism around, they are starting to restructure their businesses because clearly any future growth is not going to be fuelled by business lending.
It is perhaps no bad thing that growth is likely to be slow and steady and will be achieved by businesses ensuring they have enough working capital, by imposing tough payment terms on customers and suppliers and by everyone in the supply chain working together.
The worrying thing is that in other circles there is still too much reliance on a consumer-led recovery and that exports to non-EU countries were lower, playing no part in the narrowing of the trade gap.

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

Joined-up Thinking on Retail?

Everybody and his wife has an opinion on what should be done to revive the UK’s High Streets and retail.
They range from the defeatist “the High Street is dead” thanks to online shopping to the Portas Pilots that have given 27 towns in England approximately £100,000 each to try out new ideas.
We’ve had the pop-up shop idea, policy changes on planning, calls for a review and reduction of business rates and calls for the scrapping of town centre parking charges.
Now Bill Grimsey, former Chief Executive of Wickes has decided to do what he calls an alternative review of the High Street, after calling all of the above “tinkering at the margins”. He believes what’s needed is a complete solution encompassing health, education, housing and leisure as well as shopping.
K2 Business Rescue agrees.
People define the High Street in different ways but what’s really needed, we believe, are integrated communities that put less emphasis on shopping as a destination activity. 
For example it used to be the case in the City of London that there was nothing but acres of offices. There was nowhere one could pop out to buy a shirt, or a gift, or perhaps a few groceries. That has changed and it’s a principle that can be applied in High Streets around the country.
Stop press:  Latest to come from a review of Portas Pilots is a proposal to allow more empty shop to residential conversions in town centre side streets to stimulate footfall.  http://tinyurl.com/nj2knoy

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

Are We About to See a Rise in Insolvencies?

New research by the insolvency industry’s trade body, R3, has found that the number of zombie companies has gone down by just over 50,000 since November last year.
Zombies are defined as companies that are only paying off the interest on their debt.  However, R3 also found that more SMEs are now in distress as they struggle to negotiate new payment terms with lenders or to repay loans when they fall due.
As banks have been set new targets for improving their capital reserves they are unlikely to do anything other than improve their position.
However we at K2 believe they are also unlikely to pull the plug, so the march of the zombies will continue for some time.
As a result we are unlikely to see the number of insolvencies rise until interest rates are raised. Indeed any significant rise in interest could cause the carnage that normally follows a recession where it is in fact evidence that the economy is coming out of recession.
What’s your view? Are we about to see a rise in insolvencies?

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

Business realism – or not?

Last week we asked whether the extension of the Funding for Lending scheme by the Bank of England was a case of excessive spin.
This week the BoE seems to be reverting to realism.  The Telegraph business pages today (May 2) quote Paul Tucker, the Bank’s deputy governor for financial stability, as saying that the revised FLS scheme was not a “silver bullet”.
However, ever the optimist, Mr Tucker is still expecting FLS Mark 2 to have some effect on lending to SMEs within six months and arguing that there was reason to hope that the economy was on the mend.
Perhaps the worthy gentlemen at the BoE should get out more – and talk to the SMEs on the ground.
We are hearing nothing from SMEs to suggest that they are any more confident about borrowing and they remain focused on paying down existing debt and managing cash flow.
We remain underwhelmed about the potential for FLS to stimulate growth any time soon.

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery

If it doesn’t work the first time do it again only bigger

Funding for Lending has not stimulated bank lending to SMEs so what does the Bank of England do? That’s right, they’re extending the scheme, offering the banks loans at just 0.75% with no limits on how much the banks can borrow – but only if they lend more than they are receiving in repayments from customers.
And the formula applied by the Government makes it almost impossible for the banks to be able to fulfil the lending obligations. For the full details see the BBC’s blog by Robert Peston http://tinyurl.com/c38w4rp
All this has been announced at a time when the banks are also required to focus on recapitalising to even greater levels and when despite such initiatives SMEs are not borrowing, but instead are focused on controlling cash flow and paying down debt and are generally as risk averse as the banks.
So is the BoE missing the point or is the Funding for Lending scheme nothing more than excessive spin?
Which leads one to speculate whether Spinmeister Alastair Campbell is back in action behind the scenes.

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

Are we doing enough to publicise the benefits of business rescue and turnaround?

A recent discussion in the LinkedIn group, Restructuring and Turnaround Management, asked whether anyone in the turnaround industry ever received solid referrals from the banks.
Although the majority were responding from the USA, it seems there is little difference between the two sides of the “pond” when it comes to the banks.
The general consensus was that most lenders were either not interested in considering the options for rescue and turnaround for struggling clients or preferred instead to “manage” loans themselves until it is too late, when they call in the insolvency practitioners.
This comment from Al Jones in the US was typical of what he saw as the banks’ view: “we can handle this, maybe it’ll fix itself especially if we bluster and threaten the borrower, or it’s unsalvageable.”
But the question is how can a bank’s staff with no direct experience in small business or business turnarounds make such an assumption?
UK-based Andrew Strachan, pointed out that an inevitable consequence of this attitude was that while interest rates remained low the banks continued to prop up zombie businesses rather than risk losses, thus diverting resources away from healthy, growing companies with a real need for investment.
At K2 Business Rescue we too have seen very few referrals from banks in our 22 years as a firm specialising in turnaround. We understand that there are good reasons why banks do not initiate a turnaround or recommend one to their clients. They mainly relate to fear, fear that it may result in financial risk to the bank or damage to its reputation. This fear is valid in a world that wants to blame and possibly sue someone. And who could blame them if it goes wrong? Creditors who aren’t paid, employees who lose their jobs, or they may attract some bad press. A big risk.
A further reason for a lack of engagement in turnaround is the view that banks no longer behave as long-term partners with a client. The bank-client relationship has become more transactional. This works both ways, why should a bank invest further time or money in a client who might take their business away after the business has recovered?  
Business rescue and turnaround focuses on survival whereas all too often the insolvency practitioner makes more in fees out of a formal insolvency procedure. The banks understandably use their trusted (panel firm) insolvency practitioners to do reviews on their behalf but the system is flawed if the insolvency practitioner’s interest lies in a formal insolvency appointment. The banks know this and so the number of business reviews has declined, but it has not yet been replaced with an alternative that focuses on rescue and turnaround.
…..Or perhaps we in the turnaround profession need to get our message across more loudly and clearly?