smes finance cash flow
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Cash flow biggest concern among UK SMEs

SMEs in the UK are increasingly concerned about cash flow, with 69% saying it is a key worry.

A market study carried out by Barclaycard showed that around one in five business leaders worry about cash flow ‘always’, while 41% are more worried about cash flow than 18 months ago.

More than one-third (38%) say they expect their level of worry about cash flow to increase over the next 18 months.

The research points to a widespread requirement for financial services, including invoice finance, to smooth out peaks and troughs in business income.

This is particularly the case in sectors which suffer from delayed payments for services, including construction.

Recent analysis by Funding Options, the online business finance supermarket, found that businesses in the UK construction sector have been hit by a leap in payment delays, with invoices taking an average of 69 days to be settled.

Slow payment of bills is a major reason why the construction sector has such a high number of insolvencies; 2,557 construction firms entered insolvency during 2016.

Despite the potential benefits of using finance, fewer than one-third of UK companies say they have used asset finance or plan to use it in the next year.

Niche bank Cambridge & Counties Bank found only 26% of companies surveyed said they were planning on using asset finance over the next 12 months.

Instead, most SME owners have invested personal funds into their companies to avoid borrowing money.

Hitachi Capital Invoice Finance looked at SME attitudes to borrowing and found that 72% of business owners have invested their own funds in the past year, with eight out of 10 using personal savings, around a quarter using credit cards and 12% using overdrafts.

For new start-up businesses, 91% of owners have invested their own money, compared to 69% for more established companies.

The research showed an aversion to borrowing money, with only 17% saying they didn’t mind sourcing finance to fund their business.

The main reason for not wanting to borrow money is that companies want to owe out as little as possible (54%).

Source: Asset Finance International

Brexit
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Agenda: The perils facing businesses which fail to plan for Brexit

DESPITE the stance adopted by Theresa May’s Government after the recent round of talks we cannot be too optimistic about the potential range of outcomes. The potential for a “disorderly Brexit” remains but now the banks can cope with it, says Bank of England Governor Mark Carney.

Attempting to instil confidence, banks have recently passed stress tests which include a 33 per cent fall in house prices, a rise in interest rates from 0.5 per cent to four per cent within two years and an increase in unemployment from its current 4.3 per cent to 9.5 per cent. But what planning are the banks doing for business customers they support? With no formal “duty of care” to their business customers how might a “sharp” Brexit restrict their ability to fund new money or maintain existing loans to business?

It’s clear that the banks will have a requirement to ensure their own balance sheet remains strong and they must also meet and pass tests as to how much cash reserves they hold. But in the heat of battle decisions must be made. Those small businesses which were trading after the financial crisis of 2008 recall the limitations to how they could invest or grow their business and, in the worst case scenarios how sudden decisions to withdraw from certain sectors saw business failures spilling over into communities: to jobs, livelihoods and families.

Our most recent research has confirmed that, even before Brexit is a reality, bank net lending to small and medium-sized enterprises (SMEs) has been collapsing.

Often SMEs are the ones that are taking the risk in innovation, or in developing new technologies – but in times of recession these types of businesses are often turned away by mainstream lenders when they should be regarded as even more vital to raise productivity and grow the economy out of a downturn.

If banks are stress testing their own businesses, how then are business customers stress testing theirs and working out what they should do? Our interim report, Brexit & Scottish Business, reveals that many businesses are still failing to undertake even the most basic planning for an orderly Brexit never mind the disorderly Brexit that is actively being considered by banks. Business owners cite “uncertainty” as to why they are failing to plan, with some living in the blind hope that Brexit will not take place at all.

Some businesses are taking advice on what to do. That advice is mostly being sought from Government agencies or from business bodies such as the CBI, the Institute of Directors, the Federation of Small Business or their local Chambers of Commerce. Ironically, it is the banks themselves that are being consulted the most infrequently with lack of trust in banks being a prime factor.

Thus, business is often not planning, banks are planning only for themselves and the Bank of England is actively conceding there could be “economic pain” for business and households. “Fail to plan – or plan to fail” is the mantra by which all business, regardless of sector or scale must live. For now that might mean stockpiling cash, ensuring credit lines remain secure and so forth. Diversification could be considered by some. Price rises in supply chains could be modelled to ensure sufficient profit is baked in.

This is a time for action particularly for the small, inexperienced or exposed businesses that have the lowest capital reserves. Businesses no less than banks need to be able to cope with a “disorderly Brexit”.

The uncertainty and lack of planning in business presents both the UK and the Scottish Government with a major policy challenge. Government, too, must take action to support business. As with business, to do nothing would be to invite failure.

Source: Herald Scotland

uk SMEs consider securing finance a struggle
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56% of SMEs consider securing finance a struggle

More than half of small and medium-sized businesses (SMEs) in the UK are struggling to get the funding they need to help boost investment and productivity, new research has revealed.

According to merchant bank Close Brothers, only four out of ten SMEs have been able to secure funding from their chosen lender.

Of these, 34 per cent felt that the capital available to them wasn’t enough to fund their investment plans, while a further 24 per cent said that the type of funding they had used was too expensive.

Since the financial crisis, Britain’s high street banks have been less willing to lend to small businesses over fears they might default.

However, the market has recently started compensating to some degree with the growth of challenger banks and peer-to-peer lenders – giving businesses more options.

“Lenders could certainly do more,” said  Mike Cherry, chairman of the Federation of Small Businesses.

“One in five of our members had their credit applications turned down in the third quarter, while over half were offered a lending rate of over 4 per cent,” he added.

Adrian Sainsbury, banking division managing director at Close Brothers, said the right funding was “integral” to improving productivity and investment.

“Low productivity hinders economic growth and improving productivity is vital, particularly as the UK prepares to leave the EU. Given their importance to the economy, SMEs will be central to potential productivity gains,” he said.

“SMEs need access to the right finance and support to invest in training staff or adopting new technologies so increasing awareness of financial options is crucial.

“Bespoke funding solutions which align to specific needs and growth plans are always preferable to a one-size-fits-all approach.”

Close Brothers polled nearly 1,500 SME decision makers across the UK, France and Germany.

Its research also revealed that German SMEs were better able to access funding than their UK peers, while French SMEs were less able to do so.

Just 33 per cent of French SMEs were able to access capital through their chosen funding route, compared to 47 per cent of German SMEs.

The current level of UK productivity has flat-lined since the financial crisis.

Last month, the Office for Budget Responsibility downgraded its estimate of productivity growth by 0.6 per cent on average for the years to 2022.

It said that while productivity growth is expected pick up slightly in the future, it will remain significantly lower than its pre-crisis trend rate over the next five years.

This is bad news for UK workers as slower productivity growth means wages will not rise as quickly.

Source: Independent

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Pension funds, small businesses boost growth in UK alternative finance

LONDON (Reuters) – Britain’s alternative finance market grew by 43 percent in 2016, research showed on Friday, with interest from start-ups, small businesses and institutional investors helping to boost demand for services such as crowdfunding and peer-to-peer lending.

Last year, 4.6 billion pounds ($6.2 billion) was raised through alternative channels, up from 3.2 billion pounds in 2015, according to a survey of 8,300 investors and 77 crowdfunding or peer-to-peer platforms.

“Alternative finance has entered the mainstream and is likely here to stay,” said Byran Zhang, executive director of the Cambridge Centre for Alternative Finance (CCAF) at the university’s Judge Business School, which conducted the survey.

Approximately 72 percent of the year’s market volume, or 3.3 billion pounds, was driven by demand from start-ups and small businesses. That was up from 50 percent the year before.

 Peer-to-peer business lending was the largest market segment in 2016, growing by 36 percent to 1.23 billion pounds, providing an equivalent of 15 percent of all new loans lent to small businesses by UK banks.

Major banks reined in their lending in the wake of the financial crisis, and many small businesses complain of poor treatment and difficulty accessing funds.

Several alternative finance providers have sprung up to try to fill the gap, such as peer-to-peer lender Funding Circle, which announced this week it had lent more than 3 billion pounds to almost 40,000 businesses since its launch in 2010.

Another, MarketInvoice, offers peer-to-peer loans secured against businesses’ invoices and has lent 1.7 billion pounds since 2011.

ATTRACTING ATTENTION

After peer-to-peer business lending, the biggest categories were peer-to-peer consumer lending, peer-to-peer property lending, invoice trading, equity-based crowdfunding, real-estate crowdfunding and reward-based crowdfunding.

Institutional investors including pension funds, asset managers and banks were also increasingly backing the platforms, the survey showed. Funding from these sources accounted for 34 percent of peer-to-peer property lending, 28 percent of peer-to-peer business lending and 32 percent of peer-to-peer consumer lending.

 Peer-to-peer lending can offer relatively high returns. Funding Circle, for example, currently boasts an all-time average annual return of 6.6 percent.

But the sector’s fast growth has also caught the attention of the Financial Conduct Authority, which is looking at introducing new regulation for the sector, highlighting concerns about past loan losses and due diligence.

This week, peer-to-peer lender RateSetter, the UK’s third-largest, reported a pretax loss of 23.7 million pounds after it took a hit from a bad loan.

Source: UK Reuters

businesses
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The UK has the highest number of new business developments in a developed country despite Brexit

  • There were 218,000 new businesses in the UK last year, a 6% rise year-on-year. 
  • Other developed countries saw an average of just a 2% rise. 
  • Crowdfunding and peer-to-peer lending has been credited with this sharp rise in start-ups.

The UK outranked all other major developed economies in terms of the number of businesses established last year, according to figures from accounting group UHY Hacker Young.

It became home to 218,000 more businesses in 2016, a rise of 6% over year-on-year. Meanwhile, other major developed economies including France, Germany, Italy, Japan and the US saw an average 2% rise in number of businesses over the year.

The UK ranked sixth of the 21 countries studied by UHY, behind China, Pakistan, Vietnam, Malta and India. Across all the 21 countries, there was a 7.7% rise in established businesses.

“Enterprise and entrepreneurship in the UK have been gathering pace at impressive speed,” said UHY’s Daniel Hutson.

“As a range of new sources of funding gain traction in the market and the corporation tax burden lightens, the start-up climate is improving, financial pressures are easing and investment for growth is on the cards.”

UHY credited alternative funding sources, such as crowdfunding and peer-to-peer (P2P) lending, with helping to boost the entrepreneurial environment. The Conservative plan to lower corporation tax to 17 per cent by 2020 may also be helping to attract firms to the UK.

“The figures suggest confidence in the economic outlook, despite Brexit. Whether this is sustainable, given the uncertainties that still surround the ongoing negotiations with the EU, will be something the government will want to watch,” said Hutson.

While the UK had a total of 3.9 million businesses within its borders as of the end of 2016, China — which saw a massive increase of 19% — had 26.1 million.

The US fell in 13th place, with the number of businesses increasing by 2.1% over the year to 11m.

Source: Business Insider

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Lender clears £13.2bn of government loan repayments

The company behind Bradford and Bingley and Northern Rock Asset Management has paid back £13.2bn in government loan repayments.

In its six-month results up to 30 September, Bingley-based UK Asset Resolution said that of the £13.2bn repayments, £11bn was from its Financial Services Compensation Scheme debt. The company said that 76% of its government loans have now been repaid.

As part of the plan to repay the FSCS loan, UK Assest Resolution completed the sale of two separate B&B asset portfolios to Prudential and funds managed by Blackstone and launched a further asset sales process that, subject to market conditions and value for money, is expected to repay the loan in full.

Underlying pre- tax profit reduced by 41% to £238m. Mortgage accounts three or more months in arrears, including possessions, reduced by 9% since March 2017 bringing the total reduction to 89% since formation.

Ian Hares, chief executive, said: “In the first half we finalised a major sale of assets and, subsequently, we have launched the next stage of the asset sales programme designed to repay the remaining FSCS debt. These are major steps towards realising our objective of reducing the Balance Sheet while continuing to maximise value for the taxpayer. It is pleasing that we continue to see high levels of service delivered for our customers.”

It was in April that £11bn of the FSCS loan was repaid using the proceeds received from the sale of two separate B&B asset portfolios to Prudential and funds managed by Blackstone. In October, a further asset sales process was launched will enable the repayment of the remaining £4.7bn of the FSCS loan. The transaction is expected to complete during the first half of the 2018/19 financial year.

Since formation in October 2010, the UKAR Balance Sheet has reduced by £94.7bn, including £40.9bn of customer loan repayments and £27.2bn of asset sales, which have facilitated the repayment of £57.5bn of wholesale funding and £36.8bn of government funding.

As at 30 September, lending balances stood at £18.2bn (FY 2016/17: £19.5bn).

Statutory profit reduced to £216.8m from £480.4m reflecting the declining mortgage book, £43.5m additional provisions for PPI claims and the prior year benefiting from a £51.0m profit on sale of loans and an insurance recovery of £50.0m in relation to remediation losses incurred by NRAM in 2012.

The number of mortgage accounts three or more months in arrears, including those in possession, reduced by 9% from 4,617 at March 2017 to 4,196 at 30 September 2017. The total value of arrears owed by customers has fallen by £2.5m from March 2017 to £35.2m, a reduction of 6.6%. This reduction is a direct consequence of proactive arrears management coupled with the continued low interest rate environment.

In total, UKAR has 139,000 customers (FY 2016/17: 148,000), with 149,000 mortgage accounts (FY 2016/17: 158,000) and 32,000 unsecured personal loan accounts (FY 2016/17: 35,000).

The company said that the majority of these loans continued to perform well with more than 93% of mortgage customers up to date with their monthly payments. In addition, UKAR continues to provide oversight of the 98,000 accounts (56,000 customers) sold to Prudential and Blackstone as part of an interim servicing arrangement.

Source: The Business Desk

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Distiller secures finance to acquire historic Rosebank site

IAN MACLEOD Distillers has secured a funding deal worth £80 million, revealing that the finance will be used to underpin its recently-announced acquisition of Falkirk’s historic Rosebank Distillery.

The Broxburn-based distiller, which owns the Glengoyne and Tamdhu single malts, said it will also use the loan package to drive its organic growth ambitions.

The asset finance facility, which has been jointly provided by Bank of Scotland and PNC Business Credit, is secured against the distiller’s whisky stocks. Its most recent accounts show that the value of stock held by the firm stood at £76.5m at September 30, up 14 per cent on the year prior.

As part of its new funding deal Bank of Scotland will provide Ian Macleod, which acquired Edinburgh Gin last year, with day to day banking services, including a £250,000 overdraft facility.

It comes shortly after the distiller announced that it is set to restore production at Rosebank Distillery, which has been silent since 1993.

Ian Macleod has agreed a deal to acquire the stock and trademark from Diageo, while securing a separate agreement to purchase the site from Scottish Canals, subject to planning consent. Rosebank Distillery sits on the banks of the Forth & Clyde Canal.

Mike Younger, finance director at Ian Macleod Distillers, said: “Bringing the iconic Rosebank distillery back to life is a big project, and one that we’re incredibly excited about.

“We are very pleased that we now have a funding package which allows us to both rebuild Rosebank and fund the general expansion of the business.

“Asset based lending is ideal for us, as it provides highly flexible funds secured against our appreciating maturing whisky stocks.”

Source: Herald Scotland

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The World Bank’s new Women Entrepreneurs Finance Initiative: Recycling a broken model?

In July at the G20 meeting in Hamburg, the World Bank announced the Women Entrepreneurs Finance Initiative (We-Fi), a financial intermediary facility housed and managed by the Bank, that seeks to “advance women’s entrepreneurship” in developing countries by providing “increased access to the finance, markets, and networks necessary to start and grow a business”. The brainchild of Ivanka Trump, daughter of US president Trump, the facility aims to “leverage donor grant funding of over $325 million and mobilize more than $1 billion in international financial institution and commercial financing, by working with financial intermediaries, funds, and other market actors”.

The Bank will act as We-Fi’s trustee and secretariat whilst, “Multilateral development banks, including the World Bank and IFC [International Finance Corporation, the Bank’s private sector arm], are eligible as implementing partners to propose private and public sector activities”, and apply for funding. A governing committee, composed of the founding donors, such as United Arab Emirates and Saudi Arabia, will make its allocation decisions. The first meeting of the governing committee is planned in October 2017.

Concerns raised about facility’s ability to reach poorest women

In July, Devex reported concerns that “We-Fi’s mission will overlap” with pre-existing initiatives such as the joint IFC and Goldman Sachs’ Women Entrepreneurs Opportunity Facility (WEOF) and the Banking on Women program (see Update 85). While We-Fi is dubbed, “the first World Bank-led facility to advance women’s entrepreneurship at this scale”, the IFC’s 2014 WEOF press release stated that its 10,000 Women programme, comprised a $600 million global facility, would, “increase access to finance to as many as 100,000 women entrepreneurs in emerging markets”. It further stated that it “is the first of its kind to be dedicated exclusively to financing women-owned small and medium businesses in developing countries”.

Women who own SMEs [small and medium-sized enterprises] are not among the poorest segments of the populationCINDY HUANG, CGD

In July, Nancy Lee of the Center for Global Development (CGD) raisedquestions about how the success of We-Fi and the previous Bank initiatives are measured, stating that, “It would be helpful to know more about the track record of IFC’s WEOF so far”. There are no updates available on WEOF, which makes it difficult to assess the outcomes of the programme and use lessons learned for We-Fi. Cindy Huang of CGD made detailed suggestions in August on how We-Fi can learn from existing research on women’s economic empowerment, reminding the Bank that, “a well-designed approach to empower women must recognise and incorporate the rich evidence base that supports the connections between economic outcomes for women and investments to improve their health and education, decrease gender-based violence and unpaid care work responsibilities, and promote women’s voice and agency in advocating for their own rights” (see for example GADNBreaking Down the Barriers). Huang questioned whether the Fund will reach poor women, stating that “women who own SMEs [small and medium-sized enterprises] are not among the poorest segments of the population”.

Elaine Zuckerman of Washington-based NGO Gender Action also expressed concerns about the facility’s target audience, saying: “While We-Fi may empower some women it is questionable whether it will contribute to achieving the Bank’s goal of ending extreme poverty. We-Fi loans will target small to middle-sized enterprises, which evidence shows fail to reach poor women. We-Fi aligns with the Bank’s ‘Gender Equality as Smart Economics’ framework that supports female enterprises as instruments of economic growth without complementarily promoting women’s and men’s equal human rights”

Source: Bretton Woods Project