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Getting the appropriate loan for your small business

There are countless good people out there who would love the opportunity to start their own small business, and that’s a fact. However, this isn’t always possible due financial constraints that prevent them from saving up enough capital to achieve their dreams. If you’re one of these people, then you most probably know that you have the option of financing your venture through a loan. The problem is that you may not know much about such loans meant for small businesses.

You want to know what to go for when you’re looking to take a loan from a lender. You want some insights regarding the kind of lender you need and the appropriate loan for your business. This applies regardless of whether you’re starting up a new small business or looking for additional capital to finance your enterprise’s expansion. In that case, you could find the information here quiet helpful in that sense. Here is what you should look for when sourcing for the most appropriate loan for your small business:

It should be easy to get

If you’re setting out to look for a good bad credit guaranteed loan, the smartest move would be to look for one that’s offered with fewer restrictions on factors like age, gender, type of business or location. Also, it’s much better if you can find a lender who doesn’t place too much weight on credit scores.

In essence, the best loan for a small business should be easily accessible. You don’t want a lender who throws out people’s loan applications based on minor stuff like their age. Nobody wants that.

Flexible payment period

The worst mistake you can make is deal with a lender who doesn’t offer a good length of time for you to effectively pay back the loan. That’s always a trap especially used by shylocks in the streets out there. Avoid that.

A good loan agreement should provide for you to pay back the principal amount plus the interest in installments over a given period of time, and these installments should be appropriate enough not to hurt the business.

Have a good grace period

A loan given without a grace period is a total trap! There’s no wisdom in acquiring a loan for a business only to start paying it back the next day even before you invest. Who even does that?

If you’re serious about picking the best deal, look for one that offers a good grace period to allow for the investment to take root and the business to start realizing some profits. The period may be a few months depending on the lender’s policy. You can then use the profits generated as installments to cover the payment. That way, progress is assured.

Favorable terms of servicing the loan

First off, no smart person will do business with any entity that comes across as vague when spelling out their terms of engagement. You need to be in the know so you can be ready in case of anything unexpected.

For example, the lender should clearly spell out what happens when you miss an installment. You don’t want to deal with a lender who slaps you with a 100% fine for missing a single installment. Also, you should know what provisions are in place in the event that you pay back all the money before the agreed period is due – any incentives given or interest reduced? Pick the most appropriate loan with respect to that.

Credible lender

You’re not going to take a loan only to fall into a deeper financial pit. To avoid this, you need to vet the available lenders and pick the most authentic. You would hate to take a loan from a crafty lender that short-changes the terms of contract or gets rude during the debt collection.

There have been cases of some lenders reducing the payment period, slapping the borrower with hidden extra charges and even inflating the installment amounts. You want to avoid those by all means.

Reasonable loan amount

If your business needs $50,000 and a lender can only offer $5,000, walk away. You need a loan that covers your needs without having to involve many lenders. Also, you don’t want excess money that could turn into a liability. If a lender is trying to force you to take $100,000 instead of the $50,000 that you really need, walk away. You don’t need that.

Low or no application processing fee

You understand that a small business doesn’t need a huge loan, and that’s why you can’t allow it when a lender sneaks in some annoying charges into the loan application process. If the processing fee is too much, dump that lender. In fact, it would be best if you could find a loan that doesn’t involve slashing off an amount of it in the name of processing fees.

Reasonable collateral security

What do you think of a loan that requires you to put up your house as collateral security just to get $2,000? Ridiculous!

A fair loan should require reasonable security as compared to the loan amount taken. Don’t take up unreasonable offers.

Convenient

Some lenders get more business than others because they offer convenient loans and processing services. If you’re in business, you obviously want a loan that gets granted quickly and with less bureaucracy. Sadly, some lenders will put you through piles of forms and documents before they can give you the money. That’s not convenient, and definitely not good for business.

You want a loan with a fast application process. The earlier the money hits your account, the earlier you invest and the earlier you start generating profits. Now that’s what convenience sounds like, and that’s exactly what you want.

The points above serve to opine that taking up a loan from a lender may seem easy, but you need to exercise due diligence before you engage in such a transaction. You don’t want to try boosting your financial freedom with a loan only to end up in a stressful situation. Knowledge is power, you know!

Source: London Loves Business

 

British banks
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British banks simplify SME account opening process

A group of British banks have come together to simplify the account opening process for small businesses, working with trade body UK Finance on a checklist of details and documents firms will need for their applications.

A Competition & Markets Authority investigation into the retail banking market recently identified the account opening process as a barrier to switching for some small and medium-sized businesses.

In response, 18 business bank account providers have standardised the basic set of information that they require customers to provide when opening or switching an account.

Working with the banks, UK Finance has created an online guide, including a streamlined checklist, outlining the essential details and documents that most small businesses will need when applying to open an account.

Anne Pieckielon, director, product and strategy, Bacs, says: “said: “As operators of the Current Account Switch Service, we welcome today’s announcement and believe it is another important step towards simplifying the account opening and switching process.

“We know that small business owners are busy enough without the need to deal with further layers of time-consuming admin which, in many cases, could deter some from getting the very best deal from their business account.”

Source: Finextra
finance demand
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Demand for cash flow finance expected to rise in 2018

Demand for invoice finance is predicted to rise by 21% during 2018, according to Hitachi Capital Invoice Finance.

The rise would take the company’s total credit lent to businesses during the year to more than £1 billion, compared to £893 million during 2017.

The predictions, based on funding line data, come as its research shows almost half of all small to medium UK enterprises turned down a contract or order last year because they couldn’t deliver due to a lack of available finance.

Hitachi Capital Invoice Finance research shows that invoice finance demand tends to grow throughout spring and summer, with SME’s most likely to seek funding between May and August.

The company has published a 2018 Cashflow Calendar that identifies key dates and financial events throughout the year that could influence a business’s cash flow and guide business owners to help better manage available funds.

Andy Dodd, managing director of Hitachi Capital Invoice Finance, said: “A sound business will match its method of borrowing to the asset being financed and on which the debt is secured. This means cash flow finance represents some of the lowest interest rates and most flexible methods of finance, which rises and falls with fluctuations in turnover.

“Therefore, if the business has sound profit margins, the cost of interest will behave like a variable cost, moving in line with turnover.

“Crucially, a good cash flow finance provider will ensure that the collection of debtor invoices is efficiently and professionally carried out to minimise the amount that needs to be borrowed, mitigating future interest rate rises.”

Source: Asset Finance International

startup finance start-up loans
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£6 million in start-up loans for 1,000 Black Country businesses in the last six years

Almost £6 million in Government-backed start-up loans has been pumped into the Black Country over the past six years, helping around a thousand people get their own businesses off the ground.

Another £603,380 was lent to 88 business owners in South Staffordshire by the Start Up Loans Company (SULCo)

Since launching in 2012, the Government-backed scheme has provided a total of £1.6 million in low-interest funding to more than 300 loan recipients across Wolverhampton, helping kick-start local start-up businesses. In total, more than £375million has been provided by The Start Up Loans Company to over 50,000 loan recipients across the country.

The programme has helped 2,115 in the West Midlands who were formerly unemployed or economically inactive, as well as helping an additional 21,151 people across the UK into employment nationwide.

Across the Black Country, £1,275,725 has been lent to 190 business owners in Dudley, £1,668,300 lent to 256 start-ups and new businesses in Sandwell and in Walsall £1,390,354 has been lent to 249 budding entrepreneurs.

Chris Smith, aged 34, is one loan recipient in Wolverhampton who received a proportion of the funding to launch his own business in 2014. Evo Fit, based in Willenhall, is a start-up gym that offers cardio and resistance training, with classes ranging from core blast to HIIT and boxercise.

A former personal trainer in a health and fitness club, Chris felt inspired to take his teaching to the next level by starting a gym of his own.

He approached The Start Up Loans Company for a loan to kick-start his venture, and successfully secured £22,000 of low-interest funding. The loan went towards paying rental premises, as well as purchasing equipment used in the studio.

The business employs five members of staff and services more than 600 customers across the Wolverhampton area.

In 2015, Chris worked with with renowned fitness expert Joe Wicks and his future plans include launching new fitness and cycling programmes at Evo Fit. The business also has its sights on opening another gym in Birmingham city centre in the next year.

Chris Smith, CEO and founder of Evo Fit, said: “As a personal trainer, the best thing about my job is helping people reach their goals and transform their lifestyle in a positive way. But while I’ve always enjoyed that aspect, I realised that I could use my experience to create my own business and do it myself.

“Although I was confident I had a concept that would work, I lacked the right financial support to start-up on my own. The Start Up Loans Company provided me with a loan to help me put my plans into place, meaning I was fortunate enough to avoid any financial stumbling blocks in the early stages. Since launching Evo Fit, I’ve been able to help more people pursue their fitness goalsand continue doing what I love, which is fantastic.”

Joanna Hill, interim CEO at The Start Up Loans Company, said: “It’s fantastic to see how Chris has used his experience to help others become fitter and healthier through launching Evo Fit. Since securing financial backing, the business has gone from strength to strength, and by collaborating with fitness experts, Chris has been able to extend his offering even further.

“Reaching £1.6million of funding for new business ventures in Wolverhampton is a great milestone for us, and highlights the entrepreneurial appetite for new business growth in the area. We’re looking forward to seeing what’s in store for budding business owners as we enter into 2018.”

Backed by the Department for Business, Energy and Industrial Strategy (BEIS, the Start Up Loans Company (SULCo) was formed in June 2012 as an arm of the British Business Bank. SULCo provides personal loans for business purposes of up to £25,000 at a six per cent fixed interest rate per annum, and offers free dedicated mentoring and support to each business.

Nearly half of loan recipients nationwide have been NEETs – not in employment, education or training – but figures show the overall return on investment for the scheme is at least £3 for every £1 invested. Those receiving a loan report estimated average turnover for their new busineses of £44,000 in the first year.

Source: Express and Star

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Council launches service to help local businesses access finance

Cheshire East Council’s arms-length Skills and Growth Company has launched a dedicated service to help local businesses access finance to boost their growth.

The Access2Finance service is in response to the findings of the latest Cheshire business survey, commissioned by the council, which found that 28 per cent of businesses said not accessing finance was a barrier to their growth. Nearly 40 per cent of them claimed that cash flow problems were also hampering their expansion plans.

The findings echo national research from the Financial Times, which revealed eight out of 10 business loans are provided by the big four banks and only three per cent of small businesses seek alternative finance options if turned down by their bank.

Access2Finance is a bespoke service to to help businesses navigate the many types of finance available, including grants, loans and equity finance, to help select the right funding for their business.

Councillor George Hayes, chairman of the Skills and Growth Company, said: “The Access2Finance service will provide a much-needed, impartial and personalised approach to ensuring businesses can source the right investment, at the right time, in order to fund their growth aspirations.”

The full Cheshire business survey results are available online.

Source: Alderley Edge

Financial Ombudsman UK business
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FCA pledges to give SMEs access to Financial Ombudsman

The Financial Conduct Authority (FCA) has called for changes to the Financial Ombudsman Service(FOS) to extend their protection to SMEs.

Currently only available to individual consumers and “micro-enterprises”, the review proposes allowing an additional 160,000 UK SMEs, charities, and trusts access to the redress service.

Who is the Financial Ombudsman?

Formed by Parliament in 2001, the Financial Ombudsman Service is an independent body responsible for settling individual complaints between consumers and financial service providers.

When a customer and a business cannot resolve a dispute themselves, the FOS provide an unbiased view of the situation and propose a course of action.

In 2016, the FOS dealt with more than two million complaints, ranging from problems with credit cards and PPI to debt collection and car finance. When a dispute is brought forward, the service will investigate the case and report their findings.

Under Government legislation, the decision of the FOS is final and legally binding.

However, not everyone is able to access their services. To be considered, the claimant must be considered as an ‘eligible complainant’ by the FOS. Under the current rules, this is restricted to individual consumers, micro-businesses (those with less than 10 employees with an annual turnover of no more than 2 million euros), and charities.

According to a Business Statistics report, there were 5.7 million SMEs in the UK in 2017. Although 97% of these were micro-businesses, that leaves 200,000 small and medium businesses with no access to a financial ombudsman should they have a complaint.

So, what have the FCA said?

The FCA issued a press release on their website earlier this week announcing the start of consultations around plans to give more small businesses access to the FOS.

The FCA said that small businesses currently have the option of settling disputes with financial services themselves in court, but that they may “struggle to do so in practice”.

They have proposed the FOS should consider complaints about any regulated activity, including personal guarantors of corporate loans.

Andrew Bailey, chief executive of the FCA, said “it is important for everyone, including financial services firms, that there is an effective dispute resolution mechanism for businesses”.

Bailey went on to say that the FCA’s “evidence suggests some small businesses currently find it hard to achieve a fair outcome in disputes with financial services firms because court action is not a realistic option for them.

We have considered what could be done within our powers and the remit of the Financial Ombudsman Service to improve this situation and are proposing to expand access to the Ombudsman.”

Why have the FCA called for change?

The FCA recently published a report on ‘an independent review of Royal Bank of Scotland Group’s treatment of small and medium-sized enterprise customers referred to the Global Restructuring Group’.

This was following allegations that a group of small business customers of the Royal Bank of Scotland (RBS) were pushed to the point of collapse after being referred to RBS’ ‘Global Restructuring Group’.

According to The Times, staff of the bank were “advised to extract money from small businesses that were in the most financial difficulty” in an unpublished memo.

Whilst an independent review, commissioned by the FCA, concluded there was no evidence of systematic misconduct, the scandal opened conversations around the lack of options for SMEs that feel they have been mistreated by their bank.

Since then, talks have moved to giving small businesses the same free regulatory protections and dispute resolution options as individual retail banking customers.

What will the change mean for SMEs?

If the changes are agreed during the consultations, 200,000 SMEs will have access to the Financial Ombudsman Service. Should they have a complaint against a financial services provider, they will be able to utilize the FOS’s investigation and redress scheme without needing to go to court.

Currently, the FOS can award compensation of up to £150,000 if they find a consumer was mistreated by a financial service business. However, if the changes are to include higher-value SME disputes in the FOS’s scope, the FCA has proposed this limit be raised to £600,000.

The Financial Conduct Authority has also said that additional investment will be needed to enforce these changes and that the funds “would be borne by the industry… through higher fees or levies.”

With the consultations expected to come to a close by 22/04/2018, the FCA has said they will publish a Policy Statement detailing the final decision and rules in summer 2018.

Source: CL News

startup finance start-up loans
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Applying for finance: The five common mistakes made by startups

When you decide to apply for a loan to kick-start your firm’s growth, it’s a daunting task as much as it is an exciting one.

Essentially, you’re putting your business out there and opening it up to potential scrutiny. This means you have to find a balance between making your business an attractive proposition, while remaining realistic about your financial achievements to date and what the short-term future has in store.

In all the excitement, mistakes are common. Here are five mistakes and some sensible solutions to get you off on the right foot.

Not having an up-to-scratch business plan

Any bank, lender, or other funding source will want to know why you want the money, what you’re going to use it for, and, ultimately, why it’s worthwhile them lending to you (that is, how you’re going to make them more money in the long-run).

If your business plan is just pie in the sky or hasn’t been put together well enough, then either no one will want to lend you any money, or the money you are lent will be given to you at a really poor rate.

Being able to quantify your projected growth through sturdy financials is a must, and should be at the heart of your business plan.

Trying to go it alone

When you’re the proud owner of a startup or scaleup, it may be tempting to take on as much as possible, and keep everything in-house in order to protect “your baby”.

But enlisting a professional to assist with your business plan, until you’re good enough to do it yourself, is a very sound investment.

There are many startups and scaleups whose owners lack the specific accountancy experience required, and there is absolutely no shame in asking a professional help to ensure you have a proper business plan.

As hinted above, lenders will eat you alive if you can’t back up your finance application with a sturdy business plan. You need to wow potential investors and funders with your strategy if they are to give you any money, so it’s worth committing time and resource to it.

Taking the first offer on the table

It’s understandable that, in their hunger to secure an offer, startups are often guilty of taking the first one on the table – often out of fear that they won’t get anther one. But this is a huge mistake.

Even in the haste of it all, it’s essential to “shop around” and ensure you have a number of offers to choose from. Each offer will naturally have their pros and cons.

When we were scaling our business, we weighed up no less than 10 offers before picking one. The one we chose allowed us to run the business exactly in the way we wanted, and gave us longevity.

The others ticked some big boxes at the time (and would have been easy to accept if we hadn’t been patient), but in the end they weren’t right for us.

Have confidence in your business, sell the dream in the right way, and offers will come. Once they do, be sure to capitalise without jumping in too quickly.

Not being clear on what the money is for

I touched on this earlier, but it’s worth exploring in more detail. What do you actually want the money for? Are you expanding your premises nationally, or maybe internationally?

Perhaps you are on a recruitment drive, or developing a new product in-house.

Whatever your needs, be sure to explain these clearly in your loan application to avoid the common mistake of “money for money’s sake”.

Why borrow £5m now if you actually only need £1m to meet your immediate objectives?

Many startups make the mistake of asking for more than they need, despite it being universally known that banks use a variety of formulas to work out how much they think you can afford to borrow.

One way of helping a potential lender understand your business needs is to develop a relationship with them before you actually need finance. That way, they’re already on board with your vision, and the conversation further down the line will naturally be a much easier one.

Immediate priorities aside, it’s also a good idea to build a contingency into the amount of working capital you budget for when applying for a loan – there are always things that come up, which even the sturdiest business plan cannot anticipate.

Assuming banks are the only funding source

Some entrepreneurs assume that the only feasible option is to apply for a bank loan, largely because they’re the most conventional and widely advertised. But this isn’t the case. In fact, it’s far from it.

There are many funding solutions offered in the alternative lending marketplace – an area that has experienced significant growth of late and become increasingly popular with the startup community.

The majority of alternative finance lenders are fine with borrowers who have impaired or bad credit, or have a limited business history, making them well suited for young businesses.

Again, there is a wider point here around doing your research to find the best deal. Don’t simply go down the mainstream route because it’s the most accessible.

Source: City A.M.

Brexit
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Brexit fear greatest among innovative SMEs

THE most innovative and “economically important” small and medium-sized firms in the UK may be hit hardest by Brexit, new research warns.

The study, from the University of St Andrews, notes Brexit is viewed as likely to result in lower levels of capital investment, reduced access to external finance, lower levels of growth, reduced product development and lower levels of business internationalisation for small and medium-sized enterprises (SMEs).

The research has found concerns about Brexit are not felt uniformly across UK SMEs. The university says the results suggest Brexit-related uncertainty is likely to affect larger, export-oriented firms in the SME bracket and those in hi-tech and service-related industries most. And the study notes innovative SMEs “seem particularly concerned by Brexit”, and may be the most negatively affected.

SMEs based in Scotland and Northern Ireland view Brexit more negatively than their counterparts in England and Wales, the research has found.

The University of St Andrews notes this in part mirrors the “differentiated voting patterns” across the UK in the June 2016 European Union membership referendum.

Ross Brown, reader in entrepreneurship and small business finance at the university, declared reduced capital investment “critically weakens and undermines” SMEs’ ability to grow and prosper.

Source: Herald Scotland

invoice financing
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Invoice financing reaches record high in UK

Figures from finance and banking trade association UK Finance have shown invoice financing has reached a record high of more than £22 billion.

The figures showed an increase in invoice finance to businesses in the third quarter of 2017, with a year-on-year rise of 13 per cent.

Growth

A number of invoice financing firms have driven growth in the invoice finance and asset-based lending sector. Global electronic invoicing firm Tungsten Network Finance announced its total originated invoice outstandings have reached a record £54.5 million. This is up from 89 per cent of £28.8 million in October last year.

Despite the positive figures, there are concerns about how negotiations over Brexit will affect invoice finance levels, with research from tech services company Equiniti showing a connection between the confidence of businesses when borrowing and economic fluctuations in the UK. Figures from the analysis showed declines in GDP growth have had a knock-on effect on the confidence of businesses when it comes to invoice borrowing.

Encouraging

Commenting on UK Finance’s figures, UK Finance Director of Invoice Finance and Asset-Based Lending Matthew Davies said there is increasing understanding among businesses of all sizes of how invoice finance and asset-based lending are able to support them as they grow. It’s encouraging that a significant proportion of the sustained increases in lending recently is helping to boost exports.

However, he added  more funding could and should be provided through invoice finance, and called for the UK Government to bring forward long-awaited legislation to provide smaller businesses in particular with access to much-needed capital.

Source: LSBF

alternative lending market
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Boost for alternative lending market

Advisers rejected by banks and other traditional lenders should consider the alternative lending market, a lending specialist has said.

Jamie Stewart, director at Think Business Loans, said that between November and December the sector saw a huge demand for its services, largely coming from the adviser market.

But Mr Stewart said some advisers are still reluctant to approach the alternative lending space because they have a perception it is costly and complicated.

He said: “Nearly 100 per cent of our clients have been turned down by their banks and then plopped into the world of alternative lending, not knowing where to start. But a lot of these peer-to-peer business loans are cheaper than the banks.”

Advisers approaching the company have cashflow and investment enquiries, with some businesses potentially looking to increase their pay-per-click marketing spend or wanting to expand.

Mr Stewart added: “IFAs come to us for a number of funding requirements: in fact, the whole spectrum of purposes, from aspirational stuff like management buyouts, acquisitions, and more general funding like asset finance, cashflow loans, commercial property investment and development projects, to more niche requirements around pension-led funding, as well as private equity, and investment opportunities via the alternative market.

“As there are now so many [fund] boutiques throughout the sector, many will happily take a look at a creative project, which is drawing in the interest of more and more IFAs to this market and our application.”

Advisers are also looking for funding to help develop their tech capabilities. More recently, advisers have been seeking additional capital to help clients with bitcoin needs. Due to the nature of this industry, traditional banks are relatively averse to the entire sector, which has drawn advisers to the alternative commercial finance market.

Mr Stewart said: “In the past six months, bitcoin mining has been big. IFAs are helping their clients to mine bitcoins by buying servers and hardware machines.”

The lenders on Think Business’s panel have a broad lending criteria, ranging from, the amount required versus turnover, the purpose of the funding, director and shareholder ownership, to experience and historic business performance. The panel also includes traditional and alternative lenders.

A report in December by the Cambridge Centre for Alternative Finance, found that in 2016, business funding transacted for start-ups and small and medium-sized firms grew by 50 per cent to £3.3bn, from £2.2bn in 2015.

In total, it is estimated that 33,000 firms used various debt, equity or non-investment based alternative finance channels and instruments to raise funding, which represents around 2.5 per cent of the UK’s 1.3 million employers.

Back in November 2016 the government launched a bank-referral scheme to urge banks to pass on the details of small businesses they have turned down for loans to finance platforms, who would then share the details with alternative finance providers to approach those businesses concerned.

Jane Hodges, financial planning managing director at Money Honey, said alternative finance, enterprise investment schemes and using the services of networks were among the sources of funding available to advisers.

Source: FT Adviser