SMEs
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SMEs now twice as big

The definition of an SME – a small and medium sized enterprises – has officially changed.

As of today, 3rd October 2022, any company with fewer than 500 employees is classed as an SME and therefore exempt from certain bureaucracy.

The maximum size of a small business remains 49 employees but for a medium sized business it has been raised from 249 to 499 employees.

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The former definition was in line with EU definitions. The motive for changing the definition is to free up more companies from ‘the burden of regulation’.

Ministers do not yet know what the impact will be but hope to be able to go further. Once the impact on the current extension is known. “The government will also look at plans to consult in the future on potentially extending the threshold to businesses with 1000 employees, once the impact on the current extension is known,” it said.

Source: The Construction Index

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Business Loan Requirements: How to Qualify and What is Needed?

No matter what kind of business you run, eventually, you’ll probably need a cash injection to facilitate future operations. To replenish your business capital, you might apply for business loans from a lender. This is a common practice conducted by many enterprise owners every year.

Unfortunately, the loan application procedure can be very frustrating if you don’t know what lenders require. To receive loan approval from some lenders, you must fulfill specific requirements. Understanding these terms as a borrower will help you secure a loan faster and improve cash flow efficiency.

We hope this post will help you understand some basic business loan requirements and conditions. So, let’s start:

The Process Of Qualifying For Business Loans

It may seem intimidating to submit an application for company funding. Understanding the conditions for company loans, which could include excellent personal credit scores, collateral, and a long history of business operations, could speed up the procedure and raise your odds of being qualified for business loans.

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Factors That Lenders Consider For Your Loan Qualification

Depending on the kind of loan you are looking for, your company, and the lender you are collaborating with, you may need to provide specific documents and information. Usually, you can expect to provide the following information in addition to fundamental business information like your tax ID and business industry:

  • Credit score

Owners of businesses must keep an eye on both their personal and corporate credit scores. Since it takes time to establish a credit history for your company, your personal credit score is often more important. When evaluating your loan application, expect lenders to look at your personal credit history. To increase your chances of approval, you might wish to hold off on applying until your credit is in good standing. Additionally, you can ask one of the commercial credit bureaus, such as Bradstreet, for a report on your company’s credit history.

  • Business operational aging

Most lenders like to engage with companies that have been around for a while. They frequently require operations having been established for at least six months to a year, and banks may require two to three years. Since startups have a poor track record of paying back loans, lending to them is regarded as risky. Check the lender’s minimum time in business standards before submitting your application for financing to be sure you fulfill them.

  • Business strategy

A detailed description of your products and services, your costs, and how you make a profit should all be included in your business strategy. The financial sections of your business plan, including the financial statements and balance sheets, are probably of most interest to lenders. However, your business plan as a whole would show lenders that you have good managerial abilities, an understanding of the industry, and the capacity to repay a loan.

  • Balance sheet

Your balance sheet would show the company’s assets, liabilities, and owner equity. The company’s financial situation at any one time could be displayed by compiling this data into a single document.

To determine the company’s value, you would need to subtract your existing liabilities from your current assets. Lenders would use the balance sheet to assess the business’s financial health.

  • History and cash flow projections

The amount of money left over for a business after paying for routine daily expenses is known as free cash flow. Another instrument that lenders use to assess a company’s capacity to pay back debt is a cash flow analysis.

In addition, lenders would be able to determine how much debt your company could bear and how much money would be available to reinvest in your company by breaking out your cash flow history and estimates.

  • Account receivables and payables report

The amount customers owe you for any completed project is known as accounts receivable. On the other hand, accounts payable refers to the unpaid sums you owe to vendors.

The specifics of how your business handles payments and accounts payable demonstrate to a potential lender whether you are well-organized enough to utilize your resources efficiently or not.

  • Collateral

In order to secure a business loan, borrowers might pledge assets as collateral, giving the lender the right to confiscate those assets in the event that the borrower fails to make payments.

Although not all lenders demand collateral, if they do, the loan amount would be based on the asset’s worth. Among acceptable assets are real estate, machinery, bills, and receivables.

Final Thoughts

Before acquiring a loan for your business, make sure to research and compare lenders. Find a lender whose minimum requirements your company can meet and whose terms and conditions you can survive with.

Source: Financial Investor

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Businesses Defy Gloomy Outlook with Plans to Succeed in Next Three Months

Despite the considerable headwinds of soaring energy prices, recession forecasts, and soaring inflation, small business leaders in the UK nonetheless remain bullish in their approach, with the majority adapting and reacting to the changing economic environment.

Research from Novuna Business Finance from the quarterly tracking study of 1,201 small business leaders found that while 34% of small businesses currently predict growth, 70% are looking for ways to try to adapt and grow. This proportion has increased from 67% at the start of the year (Q1’22).

Focus on cost control

Of these businesses, costs and cashflow have been the dominant issues to tackle – 55% said they needed to reduce fixed costs, 30% were trying to improve cash flow and 25% were trying to tackle late payment. There was also a slight increase in the proportion looking to streamline their supply chain on the start of the year (9%, up from 7%).

Dealing with rising costs was the biggest worry for small businesses fearing their business would contract in the coming months – here, 73% of respondents are desperately looking at ways to keep fixed costs down.

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Investment plans remain positive

Looking at active investment, the results showed around one in eight (12%) businesses were looking to invest in new equipment for their business in the coming months, which was in line with the average for the past two years (12%). This figure increased to 26% among businesses in the manufacturing sector, up from 23% at the start of the year, and 14% of agriculture businesses (also up from 12%).

Meanwhile, around one in seven (13%) businesses were looking to expand into new markets or overseas in the coming months, again in line with the average for the past two years. This figure increased to 22% among businesses experiencing significant or moderate growth.

Around one in seven (15%) said they would be looking for additional staff in the next three months, which was only slightly down on previous quarters (18% in Q1’22, and 18% in Q3’21). The exceptions to this, however, were in the legal (26%) and finance and accounting (19%) sectors, where the proportion looking to hire increased slightly (from 21% and 18% respectively). Similarly, high hiring figures could be seen among businesses experiencing significant growth (58%), and moderate growth (29%).

Jo Morris, Head of Insight at Novuna Business Finance comments:

“There has been no let up for small businesses for an extended period now, and signs on the horizon of the storms clearing appear bleak. Rampant inflation, soaring energy costs and shrinking economic growth present merciless trading conditions, all after the serious challenges presented to small businesses during the pandemic. And yet, once again, we see the resilience displayed by small business leaders in their outlook and plans to achieve growth during this time.

“Making plans to grow is often the best form of protection during a challenging period. It provides direction to navigate through the storm, and mitigates the scrapes along the way. It also puts a business in the best position to pounce on opportunities that emerge during a crisis. At Novuna, we work with small businesses to plan for the long term, not just the immediate challenges directly in front of them, helping them to grow during the good times and bad.”

Source: Business News Wales

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More than half of SMEs in UK still struggling post-COVID

New research has revealed that over half of respondent SMEs (56%) are still struggling to stay afloat, two years on from the start of the pandemic. Earlier this year, B2B BNPL provider Hokodo surveyed 500 SMEs across a number of industries to gain a better understanding of how such businesses were recovering from the pandemic, and the results were startling.

The hospitality and tourism industry has been impacted the worst, with 77% of businesses still negatively affected. This news comes amid the cost of living crisis, with energy prices and inflation soaring.

More than two years on from the start of the pandemic, 28% of small business owners admit they are barely breaking even. Meanwhile, a further 48% said that their business is now making revenue, but the financial state of their business has been difficult to manage. During the last six months, 28% have had some difficulties making payments or missed paying invoices from time to time. For 8% of respondents, missed payments have become a regular occurrence.

With around half (56%) of SME owners feeling somewhat positive about the future of their business in the next 12 months, there is some good news to be found in the survey results, but SMEs are still facing significant challenges, with business owners worrying about a number of issues.

  • By far the greatest concern for SME business owners is increasing energy prices, which is currently worrying 49% of respondents.
  • Inflation rates are an issue for 43% of business owners.
  • Cash flow is causing problems for more than a third (39%) of SMEs – over 90% of whom had no cash flow concerns pre-pandemic. A quarter says that cash flow is no longer a problem, but it used to be during the COVID-19 lockdowns.
  • Material costs are affecting 32% of respondents while labour costs are a struggle for 16% of businesses.

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One of the ways that SMEs can alleviate cash flow problems is by having the option to delay payment of their business purchases. 23% of survey respondents admitted that access to longer payment terms is crucial to their company’s survival over the coming 12 months. Meanwhile, 41% actively search for suppliers who offer credit terms, and 15% say that this is an essential requirement when sourcing suppliers.

Perhaps adding to the financial strain is the fact that 45% of businesses occasionally have to grant their own customer payment terms in order to win deals, while 14% have to do this all the time, raising the question of why there has not been more provision made to support the B2B sector in this area.

Richard Thornton, co-founder & co-CEO of Hokodo, comments: “It’s no secret that the last few years have been difficult for businesses globally. But while there is a common perception that the concerns of the pandemic are largely over, it’s important to remember that many SMEs are yet to re-establish their equilibrium.

“With the increasing cost of living, inflation, and pressures of the energy price crisis – something that has been shown to significantly impact hospitality providers – SMEs are in need of greater support. Finding ways to better manage cash flow is at the heart of this, and contemporary trade credit solutions have the potential to provide the answer.”

Source: SME WEB

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UK’s Small Businesses ‘To Be Offered Growth Loans’

Small businesses will be offered new ‘growth loans’ by the government as part of the prime minister’s efforts to get the economy out of the doldrums.

Liz Truss announces in the Mail on Sunday an extension of the government’s Start-Up Loans program – which provides support and funding to new businesses – to cover companies that have been around for five years.

Created to help businesses in their earliest stages, the Start-Up scheme has provided more than 90,000 loans since its inception in June 2012.

Liz Truss announces in the Mail on Sunday an extension of the government’s startup loan program

The loans are subject to a fixed interest rate of six percent, and the program offers support — and discounts on products for businesses — to those who may find it difficult to get money from traditional lenders.

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In her article, Ms. Truss says, “I stand with everyone who takes responsibility and does the right thing, from starting their own business to working hard and striving for a better life for themselves and their families. Our clear plan will help them thrive.

“I know how difficult it is for small businesses. They are the lifeblood of our economy. When small businesses succeed, Britain succeeds too.’

Company Secretary Jacob Rees-Mogg said: ‘Stimulating entrepreneurship and new businesses to thrive is critical to growing the economy and raising living standards’

Company Secretary Jacob Rees-Mogg said: ‘This government is relentlessly focused on boosting growth to create better jobs, raise wages and fund our vital public services such as the NHS.

Encouraging entrepreneurship and new businesses to thrive is critical to economic growth and raising living standards. From a hair salon in Wales to a furniture store in Northern Ireland and a cake seller in the Lake District, the extension of the Start-Up Loans scheme will support these small businesses through this challenging period and position them to grow – creating jobs and opportunities all over the world. the UK.’

By Glen Owen

Source: Whatsnew2day

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Late payments costing UK small businesses £684 million a year

As inflation continues to increase, a new survey has revealed that late payments are costing small businesses £684 million each year. Using analysis from thousands of businesses based on revenue and expenses data, this is due to them being paid 5.8 days late on average.

Prepared by Accenture, with the support of Xero, the global small business platform, these findings underpin a new report: Crunch: Cash Flow challenges facing small businesses, Part II. The report aims to help small businesses and their advisors better understand ‘cash flow red flags’ – the early warning indicators that a small business is heading for cash flow trouble.

The report identified the following cash flow ‘red flags’:

Late payments: Almost half (49%) of invoices issued by small businesses were paid late, with 12% paid more than a month after they were due.
Expenses: Small business expenses rose by 18% in 2021 due to supply chain disruptions, price shocks to commodities like oil, and general inflation – a marked difference to 2020, when expenses actually declined by 1%.
Seasonal slowdowns: Amplified in sectors such as hospitality, where small businesses generate 28% of their annual revenues in summer, compared to 22% of their annual revenues in winter.
Alex von Schirmeister, Xero’s UK Managing Director, said: “Small businesses continue to show huge resilience in the face of soaring costs but our data consistently points to the damage caused by late payments. While it’s positive to see a new energy support package, the new Government must take the right action on this devastating issue.

“This isn’t ‘late payment’, it’s ‘unapproved debt’. It’s time to call it that and tackle it head on. This includes enforcing stricter penalties for the worst offenders, to provide a lifeline to an overlooked majority. Businesses should also look at the digital tools available which can also help with faster payment.”

In a separate Xero study*, 79 per cent of large UK businesses said that without their small business suppliers, their organisations would be more expensive to operate. But despite this acknowledgement, over half (55%) owned up to having paid a small business supplier later than the agreed payment terms in the last 12 months.

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Tackling cash flow ‘red flags’

The report recommends that small firms consider adopting online invoice payment options for faster payment; and work with their accountant to stay on top of government programmes that offer payment plans which help businesses smooth out their expenses.

“Late payments threaten owners’ ability to meet their own obligations – such as rent or wages,” said Rachael Powell, Chief Customer Officer, Xero. “Small firms and policy makers can send a clear message that late payments aren’t acceptable, and come together to develop policies and penalties for those who refuse to take the hint. If small businesses and their advisors can actively look out for these red flags in their financial data, they’ll find it easier to anticipate and avoid cash flow crunches.”

The report, including the insights and analysis contained within it, was prepared using Xero Small Business Insights data, publicly available data, and Accenture estimates for the purpose of informing and developing policies to support small businesses. It follows the launch of Part 1, released at Xerocon London in July.

Source: SME Web

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At least 40,000 UK SMEs expected to lean on finance-providers as costs swell

More than 40,000 UK small and medium-sized enterprises (SMEs) are expected to lean on finance-providers to help stay afloat on the back of current challenges around rising costs, according to new research.

The study from London-based fintech lender Nucleus Commercial Finance (NCF) has found that 15 per cent of firms with 10 to 249 employees expect to need a loan to support the running of their business, although just 1 per cent of sole traders predict having to go down this route.

Three quarters of firms in the 10 to 249 range reported being worried about the prospect of rising business costs over the next 12 months, with 29 per cent of this group saying they are very worried, according to the survey, which between August 10 and 15 polled 512 senior decision-makers at UK SMEs.

Just 38 per cent of businesses surveyed say they are confident about being able to access affordable finance in the next year if needed, falling to less than a quarter of sole traders.

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NCF founder and chief executive Chirag Shah said: “UK SMEs have been through the ringer over the past couple of years. Covid pushed many to the brink, and just as they are getting back on their feet, their costs are rising exponentially… the year ahead could prove to be one of the toughest.

“But businesses are not on their own. Having gone through the challenges of Covid, finance-providers and government must work together to ensure that those lessons are learnt to deliver the necessary support. Doing so means that the UK’s battle-hardened SMEs can lead the recovery on the other side.”

By Emma Newlands

Source: The Scotsman

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MCA – Case Study

The Client:

The client owns a bar and restaurant and has been trading as a Limited Company for the past 8 months, regularly turning over between £40-50,000 per month.

The Scenario:

The client was keen to expand and improve their premises, especially the outside dining area.  Most lenders require access to the latest filed accounts, which meant a minimum trading history of one year, however this can vary, even with a healthy turnover.

Discover our Business Loan Broker services.

The Solution:

The client understood his options would be limited in consequence from his trading history. Revenue based loans in the form of a Merchant Cash Advance, lend against a company’s debit or credit card revenue (as well as via third parties like Just Eat and Deliveroo).  The client was offered a loan of £39,000 a few days after applying.

Summary:

Instead of monthly, weekly, or daily repayments the lender will take a fixed percentage of the card revenue until the loan is paid back. Since the loan shapes around the business revenue, the repayments will also drop proportionately during slower trading periods.

Merchant cash or business advances are unsecured, incredibly flexible and require very little by way of paperwork in the application process. There are lenders that would consider applications from companies that have only been trading for 6 months.

Funding is quick and a guaranteed top up along with a renewal offer if a company keeps up with the repayments. 

If you have any questions about merchant cash advances &/or want to receive a free quotation, please call 03303 112 646 today. You can also fill in this short online form to get started. Our team of commercial finance experts will get back to you straight away.

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Majority of Europe’s SMEs relying on loans due to slow or missing payments

Europe’s small and medium enterprises (SMEs) are suffering from significant payment issues, but lack a thorough understanding of the processes involved, new research from Banking-as-a-Service (BaaS) provider Vodeno has revealed.

The company commissioned an independent survey among 2,004 senior decision-makers in SMEs across the UK (504), Belgium (500), France (500) and the Netherlands (500). It found that just 37% of respondents understand what a payment rail is and how it works.

Only 10% of SMEs said that payments are processed instantly, while 11% said that the process happens within the hour. Most commonly, (35%) international payments take between two and three days to reach SMEs, with 11% waiting between four and six days, and 4% waiting between one and two weeks.

The long processing times for payments is causing major problems.

More than half (52%) of the SMEs surveyed have failed to meet commitments due to slow payment processing, while even more (54%) have been forced to take out a loan as a result of missing payments that caused a disruption to cash flow.

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According to Vodeno’s research, the majority (62%) reported that delayed and unpredictable cashflow is the biggest challenge their business currently faces. The same number (62%) said that costly foreign exchange rate fluctuations contribute to a significant drain on their resources.

Looking ahead, the vast majority (68%) intend to adopt real-time payment processing capabilities in the next 12 months, with 62% saying their SME must urgently modernise its payment processing capabilities.

Tom Bentley, CCO of Vodeno, said: “Long settlement times, delayed transactions and a lack of transparency in the payments space can cause headaches for businesses – particularly small and medium enterprises (SMEs) who typically have fewer reserves to draw upon when disruptions occur. Our research shows that these organisations rank missing payments amongst their most significant challenges, with many taking drastic measures to stay afloat.

“In the current macroeconomic climate, cash flow can mean the difference between survival and insolvency, and unpredictable payment processing is the single biggest disruption to business operations. Banking-as-a-Service (BaaS) offers new innovations, better solutions, and the ability to make real-time payments a reality for more businesses.

“At Vodeno, our technology automatically identifies the most appropriate payment rail for any given transaction, offering the most cost effective and fastest settlement to our clients.”

By Paul Skeldon

Source: Internet Retailing

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Six things you must know before applying for a loan

In the old days, family and friends were the primary sources of financial aid, even if approaching them seemed overwhelming. Banks, online lenders, and loan apps have replaced the traditional method.

People apply for loans due to several reasons. It is for emergency cash assistance for car repairs or medical bills, debt consolidation, or educational purposes.

With soaring higher education costs, applying for a loan is a feasible option to cover the expenses. Although a student loan is the way to go, getting a personal loan covers additional costs like rent, textbooks, and training programs.

Sometimes, borrowers land in hot waters by accumulating several loans. A personal loan solves the problem by consolidating every loan into a single debt with a fixed interest rate. Getting a loan starts with banks or online lenders providing every necessary detail.

After the loan is approved, funding is provided on the same day or within a few days. Before applying, you must understand the types of loans to avoid issues.

There are several types, from personal mortgages to small business loans, each with a specific purpose. Apart from choosing a particular loan, you must understand a few things before taking the matter to the bank.

For instance, banks in New Zealand are thorough in identifying scams and uncovering bad credit history. Therefore, an individual must have an excellent credit history to acquire a personal loan.

Some quick personal loans by Nectar offer a reasonable interest rate, especially for those with a strong credit history. With that said, let’s discuss the credit history and other factors you must be aware of when applying for a loan.

Credit Score
Getting a loan starts with going through the credit history. A solid credit history saves money, helping you eliminate financial woes. Borrowing money has perks like interest rates directly related to the credit score.

A good credit score makes you eligible to receive the best interest rates. A low-interest rate helps get rid of the debt in a short period.

Compared to the poor credit history that only gets you rejections from banks, a good credit score offers a higher chance of getting loan approval. Apart from that, you also have the leverage to negotiate for lower interest rates.

Banks lend money to trustworthy people who value timelines. Depending on your income and credit score, there is a specific limit to how much you can borrow. Although some with bad credit history might get loan approval, there are a few system-imposed restrictions.

Besides loan approvals, having a good credit history allows access to various rewards. One of those rewards includes getting the best introductory offers. On average, applicants must have a score somewhere between 500 and 700.

Debt-to-Income Ratio
Before issuing a loan, financial organizations evaluate your budget and creditworthiness by using the debt-to-income ratio. The process ensures these organizations that you will pay off your debts on time.

The ratio expresses the borrower’s portion of income that goes into monthly debt service and is calculated in percentage. Debt-to-income ratios are of two types front and back end. The front end measures the cost regarding income.

The front-end ratio is calculated by dividing the monthly mortgage payment, private mortgage insurance, and home loans by gross monthly income.

Compared to the front, the back-end ratio is a comprehensive calculation that includes debt obligations like a credit card. What makes a good debt-to-income ratio is the type of loan you are looking for. Depending on the lender, a higher or lower cut-off is offered.

Application Process
The primary step of borrowing money from lenders starts with filling out the application form. You are requested to provide all the necessary documents depending on your loan type. Documents include financial statements for the recent and the previous years.

Some lenders initially start the process with a credit check. After providing the documents, the next step is loan underwriting. You work directly with an underwriter who verifies the credibility of the submitted documents. These professionals thoroughly analyze the cash flow and other pertinent financial information.

An underwriter guides you throughout the process by understanding the current circumstances and future goals. Once the loan is approved, the final phase of the application process is the loan closing.

A loan closing specialist signs the required documents, including the Note, Deeds of Trust, and security agreement. After doing so, the funds are distributed, and signed copies of the documents are given to the lender and applicant.

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Down Payment
While purchasing a loan, you pay a portion of the price, known as the down payment. The amount depends on the amount you are willing to pay. Some believe the more extensive the down payment, the better, while others prefer making a small payment.

The benefit of the bigger down payment is that it minimizes the loan amount with low-interest rates. With large down payments, you are less likely to suffer financially during tough times. You are more likely to establish a significant amount of equity with large down payments.

One of the primary reasons people prefer a small down payment is that there is no limitation on the amount needed. Small down payments are beneficial for saving money for emergency reserves or fulfilling other financial priorities.

When buying a home, the deposit fee must be 20% of the home’s value. Those interested in investing in residential properties must pay the deposit fee of 40% unless the particular property of interest meets the exemption criteria. Your application is reviewed before approval if the fee is less than 20%.

Interest Rates
Before applying for a loan, understand the interest rate and why it matters. In layman’s terms, the interest rate is the price you pay for borrowing money. The general rule of thumb is when paying back the original borrowed amount, you back a specific loan amount in percentage as interest.

A few exceptions, like monthly full credit card balance payments, exempt borrowers from paying interest rates. People with a solid credit history are at an advantage of receiving favorable interest rates.

The interest rate borrowers pay depends on the duration of the loan and whether the rate is fixed or subjected to change. Several factors are crucial to determining interest rates. These include credit history, income, credit reports, and the loan timeline.

Loan Tenure
The time given to repay the loan depends on a few things. The first step is to analyze your finances and your monthly income. Subtract the monthly financial commitment from your income to determine the amount you can pay for the loan EMI.

The amount calculated is directly related to the loan tenure. With larger amounts, you need more time to pay interest. Along with the loan, also calculate the interest rate the lender charges.

You can also pay off your loan even before the tenure is complete. However, keep in mind the pre-payment penalty you pay to the lender. It would be best to weigh your options and only consider the pre-payment option when you have sufficient funds.

Conclusion
Financial crises can descend upon you at any time. While many set-aside funds for challenging times, some need financial help. In such circumstances, applying for a loan is the most feasible option.

Several reasons contribute to loan consideration, from medical expenses to home renovation and relocation. Those who want to seek a loan must understand the nitty gritty. First and foremost, decide the type of loan you wish to apply for because each type is specific to your financial needs.

After doing so, understand the debt-to-income ratio, down payments, and the documents required to fill out the application form.

Source: Financial Investor