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How Can Young People Make It As Entrepreneurs In Today’s Economic Climate?

Starting a business on your own has never been an easy path to follow, but for those who take the plunge, it can be a rewarding one. No matter what your first entrepreneurial project is, support is always necessary, whether that’s your family helping you to pack your first shipment or financial assistance from government schemes.

Making your way in business continues to be difficult in the wake of recent global events and given the difficult economic landscape young entrepreneurs are faced with today, you could argue that the hill to climb is steeper than ever. Those odds can seem even slimmer when almost 60% of small businesses fail in their first three years of life. While there are barriers, there are also ways for young people to find the support they need and overcome those hurdles to enjoy business success.

The power of social media

Social media is one of the great levellers for businesses around the world. While funding issues and skills gaps are hurdles to overcome, when marketing online, you find yourself with the same opportunities as large corporations through social media. Companies that can generate a huge following through original content can then translate that presence into sales.

For example, the parkour brand STORROR gained a following of millions through its YouTube videos before successfully segueing into the world of parkour clothing. Or take the Dollar Shave Club, which began with a viral video in 2012 that acted as the launchpad for the company’s continued success.

Financial business support for young people

Starting a business requires investment, be that from your own wealth, that of your family, or from investors and banks. But most young people haven’t had the time to build up significant investment funds so they need to come from somewhere else. Fortunately, there are several avenues for young entrepreneurs to pursue when seeking funding support for their businesses.

Small business loans

Small business loans from the bank are typically between £1,000 and £50,000 and should provide enough capital to start most entrepreneurial ventures. But you will need to present your case well to the bank as they need to be convinced that you are a sound investment. Similarly, young entrepreneurs can seek help from the government with a Start Up Loan that ranges from £500 to £25,000.

You must create a business plan that is complete with facts, figures, and projections so you must do your homework and thorough market research for a successful loan application. Outlining in detail how you will use the investment and what your strategy will be are also important to put forward to earn the trust of bank loan managers.

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The benefit of crowdfunding investment is that you already have interested parties in your products, services, and brand before you kick things off. This process allows entrepreneurs to raise funds for their business online by offering a small stake in the company. It is similar to selling shares and some companies have raised millions of pounds through micro-investments.

Small business grants

Government grants are available for startups to help cover the costs of buying equipment, premises, and other essential infrastructure. These can be tricky to apply for as each grant provider is looking for different things, and you don’t want to waste precious resources trying to obtain a grant that you aren’t eligible for.

You may also be eligible for green business grants that aim to help companies become more sustainable and environmentally friendly. This can help with installing LED lights, insulation, more efficient heating, or alternative energy sources.

Improving your skills

To run a business well you not only need to have the technical expertise for your chosen field but you also need to understand the finances involved, how to manage people and supply chains, and keen problem-solving skills. You may wish to figure things out as you go but it can be helpful to give yourself a sound foundation in some of the skills you will need for success.

Consider entering a mentorship program to have someone with experience take you under their wing or try youth entrepreneurship schemes that aim to improve and develop your business leadership skills. For example, Youth Business International equips disadvantaged young people to help them build the skills, confidence, and connections they need to beat the odds and become successful business owners.

Digital skills for social mobility

Given the range of barriers along the way, such as poverty and social inequality, social mobility in the UK is difficult for many to achieve. But technology is providing a springboard for social mobility as the demand for digital skills continues to rise. From cybersecurity services to digital marketing and content creation, there are a host of startup ventures that young entrepreneurs can embark on that leave traditional business models in the past.

Source: Shout Out UK

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UK Finance Reports a Shift in Lending Needs for SMEs as Caution Rises

UK Finance today releases its latest Business Finance Review which reports on the finance needs of small and medium-sized enterprises (SMEs).

Our latest review shows the expected slowdown in lending to SMEs following a reduction in applications for finance – particularly loans – in the previous quarter. SMEs’ demand for finance continues to be muted this year as they become more cautious because of the uncertain year ahead.

Gross lending

The figures from Q3 showed a continued softening in applications for finance from SMEs. Overdraft applications continued to trend up in the third quarter, but demand for loans fell.

Gross lending through loans and overdrafts to SMEs edged down to £4.5 billion from £5.1 billion in the previous quarter. In London, this represents the second quarter of declining lending values. The South West also saw a marked drop which could be due to the decline in finance applications from the agricultural sector, which is highly represented in the region. For other regions of the UK, lending remains stable and similar to pre-pandemic levels.

Meanwhile, overdraft applications represented the highest volume of applications since Q1 2020. This points to cashflow management and working capital requirements rather than business development.

Invoice finance and asset based lending (IF/ABL)

IF/ABL advances continued to grow and have now surpassed those reported in 2020 Q1, approaching the levels seen in 2018/19. There have now been nine consecutive quarters of growth, with advances at the close of Q3 2022 standing at almost £22 billion.

Data shows that there was strong growth in the number of the clients that are supported, with total client sales up 14 per cent. IF/ABL business continued to have access to funding in existing facilities.

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We continue to see relatively modest changes in the aggregate picture across SME cash deposits.

At the end of Q3 total deposits fell by just under one per cent compared with three months previous, and by two per cent relative to the same period a year ago. This does however vary by sector. There has been a somewhat larger drop off in deposits in accommodation and food services, and health and social care. In contrast, cash deposits were higher in construction and real estate.

Source: UK Finance

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89% of SMEs intending to borrow over the next year to help them stay afloat

Demand from SMEs for lending is set to increase in the next 12 months, as 89% of businesses look to borrow to stay afloat, cover overheads or refinance existing debt.

That’s according to a recent survey from Allica Bank, which polled 150 established businesses (those with 10-100 employees) on their outlook for 2023 – a year that looks set to be dogged by recession, inflation and rising interest rates. More than two in five (43%) said they will need to borrow simply to survive, while nearly the same proportion (37%) are doing so to refinance existing debt.

It follows the British Business Bank reporting that while total debt held by SMEs reached new highs during the pandemic in 2020, loan repayments have been becoming a smaller share of business cashflows as turnovers have started to recover.

Allica Bank claims that the lack of information available to businesses about financial products makes this trend especially concerning, with 10% of respondents saying they needed more clarity about borrowing and 17% saying they wanted a greater selection of loan products to choose from.

The bank says this could lead to a growing number of businesses becoming over-leveraged, or missing opportunities to support growth. Recessions often lead to a higher proportion of defaults on business loans, while the Coronavirus Business Interruption Loans (CBILS) is already seeing an 8% default rate, amounting to over £6 billion, according to the government’s latest report.

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Conrad Ford, Chief Product Officer at Allica Bank, says it’s vital for the UK economy that businesses are made aware of the products available to them and get the expert attention they deserve: “It’s the responsibility of banks to give businesses the best chance of surviving and thriving through this recession by ensuring they can make informed choices.

“This needs to be backed up with fast and clear responses to loan applications, so that businesses aren’t waiting weeks for an answer. While banks should actually look individually at each application and assess each business on their own merits and opportunities.

“Fewer and fewer banks still offer their customers a proper relationship manager – someone that can walk business owners through their available options and help them make an application. At Allica Bank, we make relationship managers a core part of our offering for our business customers because we know how valuable their expertise can be. Especially as the economy is expected to enter recession.

“We also recommend businesses consider speaking to their accountant or a commercial finance broker for support when looking at their finance options.”

By James Cook

Source: Business Leader

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How To Get A Business Loan

Whether you’re planning to expand your business with new premises or equipment or to invest in recruitment or marketing, you may be considering taking out a business loan.

To help you decide whether a business loan is the right finance option for you, here we take a look at what they are, what you’ll need to apply for one, and the alternatives, as well as answering some common questions about business loans.

What is a business loan?

A business loan is a form of borrowing for commercial businesses rather than individuals. Some may be more suitable for start-up businesses while others may only be suitable for businesses with a certain number of years of filed accounts.

You’ll usually repay the amount you borrow in monthly instalments over an agreed period of time, with interest on top. Typically, business loans are for amounts from around £1,000 up to potentially millions of pounds.

Are business loans secured?

Business loans can be secured or unsecured. A secured loan is one that is linked to an asset, such as property, vehicles or stock. This means that if you can’t make payments, the lender may take your asset to pay for the loan.

As there is less risk to the lender, secured loans are usually for higher amounts and interest rates are usually lower.

Unsecured loans don’t require an asset as security so tend to be for smaller sums and come with higher interest rates. Unsecured loans may be more suitable for small businesses without large assets.

Some lenders will ask for a personal guarantee from a company director for an unsecured loan.

What types of business loan are there?

Some of the most common types of business loans include:

Bank loan
With a bank business loan, you’ll borrow a set amount of cash from a bank or building society over an agreed period of time, with interest.

Government-backed Start Up Loan
This is an unsecured personal loan backed by the government to start or grow your business. To apply for this type of loan, you must live in the UK, be over the age of 18 and have (or plan to start) a UK-based business that’s been fully trading for less than 24 months.

Start Up Loans have a fixed interest rate of 6%, are for amounts of from £500 to £25,000, and you can repay the loan over a period of one to five years.

Short-term business loan
Short-term business loans are aimed at commercial organisations which want to borrow for a few months, rather than years, and don’t want to be tied into lengthy repayments. They can be over a period of weeks or months. However, they tend to charge higher interest rates than other loans so make sure you know what these are.

Peer-to-peer business loan
With a peer-to-peer loan (or a P2P), you’ll borrow money from private investors rather than a bank. You will usually be matched to these investors through an online platform. You may need to pay a fee to arrange the loan, so pay careful attention to any fees, charges and interest rates before committing.

Cash advance
A cash advance business loan (also known as merchant cash advance) allows you to borrow money against your business’ future credit or debit card sales. The amount you repay monthly will be based on a pre-agreed percentage of your card sales, so you’ll pay more when your business is doing well and less when it’s not.

Invoice finance
This is when a lender uses your unpaid invoices as security to lend to you. There are two main types of invoice financing:

Invoice factoring – you’ll be able to borrow a percentage of the value of your invoices and the lender will collect payment direct from your customers. The lender will then take its costs and you’ll be paid the remaining balance.
Invoice discounting – this allows you to borrow against the value of your invoices, but you’ll collect money from your customers and then pay your agreed fee.

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How do you decide which type of business loan to apply for?

When considering taking out a business loan and deciding which type to apply for, you’ll need to think about:

  • how much money you want to borrow
  • which loans are suitable for your business type – some loans such as Start Up Loans are only suitable for new businesses, while cash advance business loans are only suitable for businesses that generate a certain amount of revenue via card payments
  • how much you can afford to pay back each month, taking the interest rate into account
  • the length of time you’d like to take the loan out for. While it may be tempting to take a loan out over a longer length of time, you may end up paying more overall in interest
  • comparing the fees and charges with each loan you are considering.

It’s important to compare your options and to shop around before committing to an option or lender, looking at the overall costs of borrowing.

Applying for a business loan

Before you apply for a business loan, you’ll need to be clear about:

  • the amount you’d like to borrow
  • what you are borrowing the money for
  • how much you can afford to repay each month
  • how long you’ll need to repay the loan.

As with other types of loans, your business’ credit rating is likely to be checked, with more competitive loan terms generally being offered for those with a good credit score.

Some ways to improve your business’ credit score include:

  • checking your credit report and disputing any errors
  • paying bills on time
  • if you’re a limited company, filing full, rather than abbreviated, accounts to Companies House
  • making sure you have enough money in your account to cover any planned payments
  • only applying for credit when you need it. Making lots of applications suggests you are struggling financially. You could ask for a quote instead
  • keeping all of your information, such as your business address, up-to-date. Notify suppliers, as well as Companies House, of any changes
  • avoiding county court judgements (CCJ) as these are recorded on your credit report.

You may also be asked for copies of your business accounts, bank statements, details of profits and loss, tax returns, a business plan and proof of address and IDs of company directors.

Once you have gathered your documentation and have decided on the type of business loan most suitable for you, you can shop around then apply.

Comparing business loans

When comparing loans, some important elements to check are:

  • whether you are eligible for the loan you are considering. Always check the lender’s requirements carefully before applying
  • what the interest rates are for the loan and whether they are fixed or variable. It’s worth remembering that Representative APR means that the rate, or lower, is offered to at least 51% of applicants, so 49% of applicants will likely be offered a higher rate
  • whether your loan provider offers a repayment holiday (a few months off paying). However, taking a break from paying will mean that it will take you longer overall to pay off the loan and you’ll pay more in interest in the long run
  • whether there’s an early repayment charge on the loan.

Alternatives to business loans

If you don’t think that a business loan is for you, there are other options including:

  • Business credit cards – if you are looking to borrow smaller sums, a business credit card may be suitable. You may benefit from an interest-free period on your purchases. However, always pay your balance off each month to avoid paying interest charges or fees and check what the card’s annual fee and interest rates are after any 0% period.
  • Crowdfunding – this allows you to raise investment, often by pitching your business idea online, in exchange for rewards for the investors you attract. You could sell a stake of your business through equity crowdfunding or offer a reward such as free products or tickets through reward crowdfunding.
  • Overdrafts – your business account may have an overdraft which is either interest free or a low APR. This is usually only suitable for small amounts, though, and you’ll need to check the terms of your overdraft and stick to them.

By Cathy Toogood, Jo Groves

Source: Forbes

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Festive cheer: SMEs to reward employees with 120 million extra days off

Small and medium-sized businesses are set to reward their employees with 120 million extra days off as the cost-of-living crisis bites.

More than half a million UK small and medium-sized enterprises (SMEs) are spreading festive cheer among their workforces by giving the gift of time, according to the latest quarterly SME barometer from Barclays. One in ten SMEs said they would be gifting each employee 2.5 extra days leave, on average, meaning that workers across the country will receive 120,345,602 days off cumulatively, the bank said.

People working in the hospitality and leisure, and manufacturing sectors will get even more time off, with 3.5 days and three days of additional holidays, respectively. The Barclays research found that 41 per cent of SME employers believe staff activities leading up to the festive season contribute to employee retention. Similarly, nearly a third (30 per cent) of Scottish employees say they are less likely to look for another job if their employer organises activities to reward staff over the festive period.

Of employers who are seeing an increase in demand for benefits from new employees, more annual leave is one of the top three benefits being requested by existing employees. In addition to providing time off, about two fifths (44 per cent) of SMEs will be hosting end-of-year parties, spending an average of £56 per head on festivities, while 41 per cent will be closing offices between Christmas and New Year and 25 per cent will be awarding Christmas bonuses.

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According to the latest barometer, more than half (55 per cent) of UK SMEs reported their total revenue grew – with turnover up around 9.1 per cent year-on-year, on average. Some 51 per cent of UK SMEs reported turnover growth in the third quarter of 2022 compared with the second quarter, consistent with data from Barclaycard Payments, which showed a modest increase of 5.2 per cent in the value and 4.4 per cent in the volume of payments made to Scottish SMEs between July and September this year.

Festive cheer and optimism are, however, dampened by the cost-of-living crunch as nearly half (47 per cent) of UK businesses are worried about their prospects heading into the new year. Some 68 per cent of firms are concerned about the negative impact that rising energy bills will have on their business, with 26 per cent feeling very concerned. Larger businesses are feeling the pinch too, with nearly two-thirds (59 per cent) predicting a decrease in consumer spending and 41 per cent worrying about their businesses prospects as they approach 2023.

Colin O’Flaherty, head of SME at Barclaycard Payments, said: “The upcoming festive period will be our first since the pandemic without restrictions, with employers and employees looking to make the most of it. While it’s been yet another challenging year for businesses, many SMEs are looking to inject some festive cheer by rewarding their employees, as business owners are aware of the positive impact that employee morale can have on staff retention. Our research shows that although owners are very aware of the difficulties to come, they remain resilient in the face of rising costs.”

By Scott Reid

Source: The Scotsman