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A Quarter of Small Businesses Would Cut Staff if They Couldn’t Access New Finance

According to new research commissioned by ground-breaking financial utility, Saxo Payments Banking Circle, SMEs are facing potentially fatal challenges in accessing finance to support the growth of their business.

“Since the financial crisis began in 2008, mainstream banks have been less willing to lend, particularly to smaller enterprises and this has forced SMEs into an unfair fight for the finance they need to compete effectively,” explained Anders la Cour, co-founder and Chief Executive Officer of Saxo Payments Banking Circle. “Our research found that lack of access to additional finance would force 25% of SMEs to let employees go. Nearly a third (30%) would have to reduce prices to encourage sales and increase cashflow, and 39% would be unable to buy the equipment the business needs.”

Over 500 financial decision makers and directors in SMEs that have an online presence responded to the research commissioned by Saxo Payments Banking Circle. Almost all (92.5%) have accessed business finance within the past five years, but many have experienced difficulties in borrowing from their usual bank.

Interest rates and fees were the biggest concern, with 58% saying they would consider finance from a non-bank if it offered lower interest rates. 44% would do so for lower arrangement fees. 25% would be attracted to a non-bank by simple online account management.

The reason for SMEs going into battle for finance varies, but buying equipment was the most common reason why they needed extra cash – for 52.9% of SMEs. Purchasing inventory came in second place (34.5%), followed by expanding into new markets for 27.5%.

The most common type of finance used was a one to three year loan, taken out specifically for the purpose. The second most common type of finance was an overdraft. And, whilst likely to be more expensive than other finance facilities, 60% of SMEs with 10-49 employees said they had relied on their overdraft within the past five years. Without that essential facility they would have had to take drastic steps to cut costs.

Ability to access finance quickly is essential for small businesses working in a fast-paced market and trying to compete effectively. However, the Banking Circle research painted a worrying picture of the length of time firms wait to get their hands on the cash their business needs. Just 3% managed to get the finance arranged within a week. 33.3% took 1-2 weeks and 36.3% waited 3-4 weeks for the finance to be arrange. 2.1% of SMEs waited up to six months for their finance – a small percentage, but representing almost 120,000 businesses across the UK.

“SMEs play a vital role in the global economy, and anything holding them back from their potential could have a severe and far-reaching impact”, continued Anders la Cour. “The business landscape is changing, and traditional lenders are not able to keep up and meet the needs of SMEs. Only financial institutions willing to adapt to new market conditions, working with third-party providers in an ecosystem model, will remain competitive and successful in the digital age.”

Source: Bobs Guide

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SME Owners Need a Year’s Financial Buffer to Feel Safe: Despite Existing Debts

Nearly a third (28%) of small business owners don’t feel financially confident unless they have a buffer big enough to cover running costs for a year, according to new research* from merchant services provider Paymentsense ( The study found that despite this, more than four in 10 small business owners (41%) admit to having no such buffer in place, meaning as many as 2.3m UK small businesses may have no financial backup plan.

This ‘financial confidence gap’ between what business owners need to feel secure, and what they actually have, comes after the British Business Bank published a report revealing that small business confidence and demand for finance are declining.

The government-owned development agency found the proportion of businesses confident of loan approval fell recently from 58% to 43%. The report also highlighted that lending was flat to small businesses in 2017.** These findings arrive at a time of uncertainty over European trade negotiation outcomes, and reports of an expected medium-term interest rate increase.

For those businesses that do have something in reserve, Paymentsense found that the most popular backup is cash savings – held by nearly six in 10 (59%) of prepared businesses. A third (34%) said their buffer included property and nearly a quarter listed an overdraft (23%). Plant and machinery featured for a fifth (20%), with 17% using business credit cards.

Michael Foote, who founded UK price comparison site Quote Goat ( in 2015, said: “As a small business owner, feeling financially secure has always been one of my top priorities. For me, this means ensuring I have a cash buffer that covers company costs for at least half a year, to safeguard against potential cash flow problems.

“Initially it was difficult to build and meant taking the bare minimum out of the business whilst it grew. However, it’s let me focus my efforts elsewhere in the business, enabling Quote Goat to successfully compete against larger competitors in the industry.”

The Paymentsense study also found that almost two thirds (61%) of SME owners are in debt, with monthly repayments averaging almost £3,600 (£3,589). What’s more, over half (55%) admit to deliberately paying suppliers and partners late to ease cash flow problems. More than a fifth (21%) said they do this at least once a month.

Guy Moreve, head of marketing at Paymentsense, comments: “We know that feeling financially confident is critical for small business owners. Aside from helping you sleep at night, it enables accurate long-term fiscal planning for growth rather than just survival. Having a buffer is just part of the picture. Cash flow monitoring and proactive credit control are also essential. However, we’d caution against routinely delaying invoices to partners and suppliers, as it risks damaging important business relationships.

Working with over 60,000 small businesses across the UK, we understand their financial anxieties. Despite recent drops in the rate of inflation, a future increase may lead consumers to become more cautious with their purchases, and would make existing business loans more expensive to manage for SMEs. With this in mind, having a buffer makes great business sense. Actively setting aside a little each month will help balance slower trading periods, and unforeseen expenses. Even something as simple as a weekly cash flow report can provide insights that will enable you avoid future problems.”

The most popular financial buffer

Cash Savings 59%
Property 34%
Overdraft 23%
Plant / machinery / equipment 20%
Business Credit Cards 17%
Asset-based lending / factoring/ invoice finance 16%
Bank Loans 14%
Stocks and investments 13%
Help from family and friends 8%
Government funding scheme 8%

Source: Payments Journal

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Will Brexit be good or bad for Britain’s small firms?

It’s always been tough for small and medium sized British firms to find enough money to enable them to grow into world-beaters. But since 1994, the Enterprise Investment Scheme has given generous tax incentives to investors to encourage them to put money into small unlisted companies, either directly or through a fund. This scheme has been very successful in helping the UK’s technology sector.

To see how Brexit might affect it, and small companies in general, we’ve turned to Mark Brownridge, director-general of the Enterprise Investment Scheme Association, the trade body for member firms.

The evidence for Brexit’s impact on small firms paints “a confusing picture” admits Brownridge. On the one hand “the majority of SMEs are by their nature small and growing and don’t have significant import and export supply chains”, which suggests that “leaving the EU isn’t a major concern”. Most firms are taking the view that “without clarity in terms of a trade deal, the best option is to keep calm and carry on”.

Still, it’s undeniable that smaller companies will feel the pain from any economic slowdown: research by the British Business Bank suggests that only 5% of SMEs expect that they will benefit as a result of Brexit.

There are obvious concerns about the labour market

One major area of concern is how Brexit will affect the labour market, both in terms of EU workers already in the UK and of future migration. Brownridge points to research by Deloitte that suggested that “as many as 47% of skilled EU workers in Britain could leave the country as a result of the fallout from Brexit”. Even if large numbers of people don’t leave, SMEs are particularly worried about “the lack of skilled labour coming in from the EU to provide them with the technical skills and workforce they require to drive their business forward as there is a lack of technically skilled people in the UK”.

This shortage of skilled workers is a big problem for all British companies. Brownridge points to a study carried out by the Open University, which found that “nine in ten companies had struggled to hire workers with the required skills in the past”. So it’s not surprising that Brownridge would like to seem an immigration policy that is as close to free movement of travel across borders as possible. At the very least, the government “could do more to address the situation”.

At the moment the UK is one of the world’s major technology hubs, “with around a fifth of technology leaders naming the UK as the most promising global market for technology breakthroughs, behind only US and China. London’s “vibrant tech scene” attracted $3.4bn in venture capital investment – four times as much as Paris, the next largest European city. But there is little room for complacency, says Brownridge, as “there is no doubt that a number of major European cities are jockeying for position as the finance capital of Europe, and London has a fight on his hands”.

But it’s not all doom and gloom

Still, it’s not all doom and gloom, as there are some clear benefits to Brexit. After all, “many of the negative aspects of the EIS scheme are actually imposed by EU state aid rules”. For example, at the moment, “companies are having to delay much needed fundraising” thanks to “rule changes included in the 2015 and 2016 Finance Acts, most of which were intended to secure EU state aid approval”. Once Britain leaves the EU, we will be able to “take back control of the state aid rulebook and rationalise rules relating to granting of EIS relief to small firms”.

But even in this case, it is unfair to put the blame solely on Brussels, says Brownridge: “There is scope to reduce the uncertainty and complexity within the current EU state aid framework if HMRC were to adopt a more pragmatic approach to its interpretation of the existing legislation”, says Brownridge. HMRC “must be given the resources it needs to process applications more quickly”.

All in all, Brownridge remains optimistic as “the government seems keen to build an entrepreneurial spirit and make the UK a hub for small businesses and we certainly believe that EIS and SEIS can play a significant part in creating that environment”. While “funding has been an issue for SMEs for a number of years now” the evidence suggests that “that cash has flown in from abroad over the past year”.

Source: Money Week

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SMEs at risk of getting burnt by interest rate rises – why accountants should take note

As the UK’s near-zero interest rate era comes to an end, small businesses are exposed to rate rises. With another Bank of England increase on the horizon, it’s important to understand just how much of a financial toll this will take on SMEs – both for their own financial stability and for the economy as a whole.

It’s an issue that accountants should pay close attention to on behalf of their clients, in relation to the potential impact on future business decisions. To get a better understanding we have reviewed the available data – and the results make for startling reading.

We found that a rise in interest rates of just 0.25% would cost British SMEs another £355m in interest payments in the first year alone, with annual interest payments on floating rate loans jumping from £3.7bn to more than £4bn overnight.

The lack of fixed-rate lending available to small businesses is a major issue: only a small minority of SMEs will be insulated from the immediate effects of the jump. Just 11% of business lending is now being provided on a fixed rate basis – down from as much as 50% from five years ago, as banks have prepared for the looming prospect of rate rises by de-risking their loan books accordingly. Effectively the risk has been pushed back onto SMEs.

In such an environment, the repercussions of the post credit crunch swaps mis-selling scandal on SME financing loom large. Small businesses are now extremely wary of using swap products to fix the interest rate on their loans – and even if they wanted to, they would have great difficulty in obtaining approval from any institution to do so, removing another layer of protection from rate rises for businesses.

As a result, SMEs are having to deal with significant uncertainty over the cost of finance, making it far harder to plan for business investment.

Added to uncertainty, there’s also a very real risk that corporate finance activity could be shelved, since certainty of term and fixed pricing to match the revenues generated by new business asset acquisitions is critical when it comes to building a business. The lack of fixed rate financing could be damaging on a wider scale because continuously revitalizing UK businesses through un-interrupted access to debt refinancing and M&A opportunities helps keep markets competitive.

It’s clear that now is the time for small businesses to lock in to fixed-rate loans, before interest rates rise too much further. The rates of the last 10 years have been an historical anomaly so it’s worth noting that if the bank rate were to rise by a full percentage point to 1.5%, it would cost SMEs an extra £1.4bn in interest payments.

However, given that fixed-rate loans are now virtually unavailable from banks that’s no mean feat. SMEs are increasingly having to consider other options beyond traditional High Street lenders. Alternative sources of finance are worth exploring, but those that offer fixed rate terms may also be in short supply – their borrowing costs often being linked back to mainstream rates.

One option is borrowing from an investment fund, whose costs of capital are far lower, and who are actively targeting this kind of lending. This is an approach we at Hadrian’s Wall Capital believe deserves much more bandwidth in the marketplace.

With interest rates set to go only one way – up – issues around SME funding and the impact of spiralling borrowing costs cannot simply be ignored. If UK plc is to continue to thrive both in the immediate future and in a post-Brexit world, access to fixed rate finance will be a fundamental driver. Small businesses are about to get burned by rising rates – and that would inflict pain on all of us. It’s time to do something about it, before it’s too late.

Source: Accountancy Age