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Small business loans will “give hope to thousands”

New government loans announced for small businesses will “give hope to thousands” as they fight to survive the impact of the coronavirus pandemic.

That is the view of the Federation of Small Businesses, who welcomed Chancellor Rishi Sunak’s announcement of the micro loan scheme which provides loans of up to £25,000 with a 100 per cent government guarantee.

Making the announcement yesterday, the Chancellor said the bounce back loans – which are capped at 25 per cent of turnover and have a streamlined application process – will be available from Monday.

And FSB national chairman Mike Cherry said the announcement was vital for those firms not covered by the existing coronavirus loan scheme.

He said: “The decision by the Chancellor to listen to our recommendation will give hope to thousands.

“The headline terms will be hugely welcomed by the sole traders and micro businesses that make-up 95 per cent of the small business community.

“Removing the need to provide forecasts marks an important step forward – small firms cannot be expected to predict the future in this climate.”

Mr Cherry called on the government to ensure the delivery of the loans was administered correctly so help reached the right people in time. 

”From here, we need the right delivery,” he said. “The fast-track system must be established by next Monday with money delivered 24 hours after a successful application as promised.

“All those who have been declined a small Coronavirus Business Interruption Loan Scheme facility should now be written to with the offer to re-apply via this new system.

“Many small businesses have had to pay March and April’s payroll, on top of other overheads, with no revenue coming in at all. This announcement promises to change that fundamental lack of access to working capital.”

He continued: “In the long term, we need to protect the competition achieved in the small business lending market that so many have fought so hard to secure.

“At the end of this crisis, non-bank lenders are going to be key to economic recovery as part of a thriving small business finance market that does not just rely on the big five banks.

“Equally, the big banks must ensure they are in a position to facilitate a large a number of small business loans. Some of their systems are already creaking under the strain.”

The loan scheme was also welcomed by Business West, who represent the region’s Chambers of Commerce, but Gloucestershire director Ian Mean warned that the Chancellor’s statement to the House of Commons contained some less welcome news.

He said: “The good news will be very welcome by small businesses so worried about the delays experienced by many of them in applying for cash through the government’s much-heralded Coronavirus Business Intervention Loans Scheme.

“But there was good and grim news. The Chancellor told the Commons that ‘survey evidence suggests that a quarter of firms have stopped trading’.

“He made no amplification of that alarming figure – many of them might have just paused trading, but this figure must be of great concern for our economy.”

The new loan scheme is available for firms which existed on March 1 with money due to be in accounts around 24 hours after an application is approved.

Applications are short and can be submitted online from Monday with basic details to confirm a business is eligible with tax returns required in a small number of cases.

While the Government will cover interest and fees for the first 12 months, businesses will pay back the loan at what the Treasury describes as ‘very low’ interest rates over around five years.

Meanwhile, the Chancellor has dismissed calls from church leaders for companies that avoid UK taxes by routing profits through tax havens to be barred from receiving coronavirus support packages.

Former Archbishop of Canterbury Rowan Williams was among the senior clergy who called on the Government to follow Denmark, Poland and France in refusing to help companies registered in tax havens.

A spokesman for the Treasury said: “HMRC has robust tools to challenge businesses who avoid paying their fair share of tax.

“That is the right way to challenge avoidance, not by denying support to British workers who pay their taxes and would otherwise lose their jobs.”

By Rob Freeman

Source: Punchline Gloucester

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How Invoice Finance could drive the UK economy following a no-deal Brexit

With the details of Theresa May’s recent Brexit deal pushing cabinet members to resign, and a seemingly long road ahead before a draft deal is passed by the UK parliament, a no-deal Brexit is becoming more than just a worst-case scenario.

Small-to-medium-sized businesses are making more conscious efforts to put serious contingency plans into place, as a result.

A CBI survey on Brexit preparedness this year stated that more than 50% of businesses had examined different Brexit scenarios, and more than 60% had begun developing contingency plans in the event of no deal.

However, findings from the same survey showed that 77% of businesses said the number of potential scenarios made planning for Brexit challenging. Amid all the uncertainty, the question remains, what can SMEs do to keep a strong economy post-Brexit?

A study published this year by Equiniti could have highlighted Invoice Finance as the answer. The report demonstrated a close correlation between the level of business borrowing and rising Gross Domestic Product (GDP); connecting the two makes a strong case for Invoice Finance being an optimal way to fund business growth in the wake of a cliff-edge Brexit.

Understanding the threats

So what happens if we depart from the European Union with no concrete agreement? Where does that leave the small business owners of Britain?

One of the biggest talking points surrounding life post-Brexit falls on the dissolution of a transition period. Without a deal in place before exiting the EU, we would need to revert to trade on the basis of World Trade Organisation rules in a matter of days, meaning businesses would need to be ready to react to the changes, and fast.

CBI data shows 48% of businesses that had completed scenario planning found the main difficulties related to the costs incurred for internal resources or for hiring external help.

With no implementation period, increasing costs attached to simple business essentials, additional tariffs and the anticipated fall in sterling, SME survival could be in real jeopardy.

Numerous organisations including the Centre for Economic Performance at the LSE and the OECD have raised concerns that the WTO scenario may reduce UK GDP by up to 10% or more, which could result in company earnings and stock prices reducing with it.

These unfavourable outcomes could act as deterrents to potential investors looking for investment opportunities, placing further pressure on the types of funding available for SMEs.

To survive a no-deal Brexit, UK SMEs will need to find quick and accessible ways to acquire and maintain healthy cashflows, source new suppliers, and access funding facilities that grow in line with their business to help pay unexpected tariffs, charges and taxes.

However, searching for the best most relevant methods of financing and investment will be difficult in the current climate, leading many to query which kind of financial backing is the most viable for SMEs post-Brexit?

Connecting the dots

There are a small number of financing options that allow SMEs to borrow large sums of money without having equally large minimum turnover requirements.

There are even fewer that also provide flexibility, competitive prices and the kind of quick turnaround decisions that will be necessary to keep the economy afloat post-Brexit.

One of the main sources of funding that adheres to all the above is Invoice Financing, and it is this option that may well hold the key to the betterment of the UK economy.

Invoice Finance is a way for businesses to borrow money against the outstanding amounts due from their customers. Businesses pay a small percentage of the invoice amount to the lender as a borrowing fee which allows business owners the financial flexibility to access working capital.

Findings from the Asset Based Finance Association (now known as UK Finance) show that Invoice Finance is already popular amongst SME’s, with the amount advanced to the UK’s smallest businesses jumping over 60% within just a year. The goal here will be for SMEs to continue this pattern after Brexit decisions have been made.

With small and medium enterprises totalling 99.3% of all UK private sector businesses, the loss of capital from this sector could stifle business growth and impact the overall strength of the British economy.

To stop this from happening, small-to-medium sized businesses need to continue growing and thriving, with strategic lending solutions such as Invoice Financing acting as a brilliant way to adapt confidently after Brexit has passed.

Source: Asset Finance International

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30 per cent of SMEs require funding to survive

New research by leading small business finance provider Liberis finds that nearly 30% of UK SMEs require funding simply to stay afloat.

Across a broad range of criteria made available for business owners, ‘keeping afloat’ scored amongst the top five reasons for finance requests; with ‘purchasing new equipment’, ‘keeping up to date’, and ‘other operating costs’ also scoring highly.

The research also found the most common sum of a request was of around £30,000 and was required to take the business to the next-level.

Today, there is an understood resistance from banks to lend to UK small businesses, prompting concern on the wider impact on UK small business survival rates. Liberis’ research also found there is a perceived reluctance among UK banks to invest in risk and innovation, indicating a demand for alternative financing options.

As the lifeblood of the UK economy, SMEs contribute more than £200bn a year, with this number expected to grow by almost 20% by 2025. Yet, without a vital cash injection, this 2025 vision will be severely stinted.

With 62% of UK small businesses viewing funding as a mechanism to grow, it is worrying that 55% are unable to access this required funding.  Concerned for the growing pressure and expectations on banks and other mainstream finance providers, alternative financing providers such as Liberis, can provide a simple, flexible and transparent funding system to help UK SMEs achieve their ambitions.

Partnering with companies including Worldpay, Sage Pay and JustEat, Liberis has a direct reach over 750,000 UK small businesses and supports SMEs in obtaining cost-effective funding.

Commenting on the report, Rob Straathof, CEO at Liberis, said: “In an increasingly uncertain economic climate, there is a greater need to protect our small businesses and provide them with much needed working capital. Liberis occupies a space which has been left empty by the traditional role of banks and lenders to provide financial support to small businesses. We’re on a mission to support small businesses and help them reach their goals.  From the local bakery to the neighbourhood pub, we’re here to provide a lifeline to keep them afloat.”

Earlier this year, Liberis announced a funding investment of £57.5million to support an estimated 100,000 jobs by 2020. The amount was secured in combined funding from British Business Investments, Paragon Bank, BCI Finance, and Blenheim Chalcot, the UK’s leading digital venture builder; and demonstrates Liberis’ long-term aim in supporting UK small businesses through such partnerships.

Straathof, added: “The traditional channels of business loans and funding are, in today’s ever-changing world, no longer able to operate at the same capacity at which they were once expected. In fact, the total amount of bank overdrafts and loans outstanding to small businesses has decreased by nearly £6 billion of the past 5 years according to UK Finance Q2 2018 research. This has enabled Liberis to protect UK businesses as we aim to provide much needed working capital – not only based on credit history, but business potential too – whilst delivering a trusted financial product through credible partners.”

Source: London Loves Business

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High street bank converts just 8% of SME loan applications

The average conversion rate of one high street bank for loans to SMEs is just 8 per cent, according to SME funding platform Code Investing.

This partly explains the £59 billion funding gap in Britain between money applied for by SMEs and loans agreed.

Across Europe, the figure is even higher with a £630 billion funding gap.

This year £580 billion will be lent to SMEs in Europe.

“Due to regulation, due to banks having huge cost structures, due to SMEs not having standardised data, there’s quite a big funding gap,” said Code Investing CEO Ayan Mitra.

Mitra was speaking at a breakfast briefing on digital disruption in the SME lending market at BNP Paribas Asset Management in London this morning.

For high street banks, one problem is that it takes the same amount of effort to provide larger loans compared to SME lending, said Mitra.

SMEs hoping to borrow money are often left waiting in what Mitra called “the broken SME borrower experience”, with an industry average of 144 days waiting for a loan to be agreed.

Code predicted a boom in SME lending from alternative finance (“alt-fi”).

Currently, alt-fi accounts for 2 per cent of the £11.5 billion UK SME lending market.

Code predicts that alt-fi will carve out a 9.1 per cent market share, worth £52.6 billion, by 2021.

The funding platform currently lends £171 million to SMEs, working with 65 institutions, of which 15 have extended loans to date.

Its conversion rate is 40 per cent of loans applied for, compared with the anecdotal 8 per cent figure from one unnamed high street bank.

By 2020-21, Code plans to lend £2.4 billion to SMEs in tranches of upwards of £500,000, addressing the mid-market SME sector.

“We can provide an add-on function for institutions offering to arrange credit for SMEs,” said Mitra.

“SME lending will move online in much the same way that Google Maps has disrupted the old paper map market. Alt-fi will become mainstream within the next five years.”

According to BNP Paribas, 1.3 million small and micro entrepreneurs access funding from alternative finance with an average loan size of £95,000.

Another 34,000 larger SME businesses in Britain borrow between £500,000 and £1 million.

Stéphane Blanchoz, head of SME alternative financing at BNP Paribas Asset Management, echoed Mitra, saying that the volume of loans offered to SMEs had tripled in the last few months.

Source: SME Web

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SMEs to be allowed to borrow against unpaid invoices

Small businesses will be able to raise cash against unpaid invoices from the beginning of next year. The government reckons this will provide a £1 billion long-term boost to the economy, and that £9.5bn worth of SME invoice finance is waiting to be unlocked.

At present, small businesses cannot raise cash against unpaid invoices from large firms. Big suppliers use not paying invoices as leverage when negotiating with SMEs. New laws will arm small businesses against these unfair contracts, which stop them raising money from unpaid invoices. This will help strop larger businesses from abusing their market position.

Small Business Minister Kelly Tolhurst said: “These new laws will give small businesses more access to the finance they need to succeed and will help ensure they have a level playing field from which to set fair contracts with the businesses they supply.”

Larger businesses often use restrictive contract terms to maintain a hold over their suppliers; small suppliers are often unable to negotiate changes to the proposed contract because they do not have enough power.

From the start of 2019, SMEs can assign their right to be paid to a finance provider such as a bank in exchange for funds, typically 80 per cent of the value of the invoices. The initial advance is received within a few days and the balancing 20 per cent (less fees and charges) is paid when the customer settles the invoice.

Edward Winterton, UK CEO of Bibby Financial Services, was one SME lender who welcomed the news.

Winterton said: “Invoice finance is an essential means of growth funding for more than 40,000 businesses throughout the UK. However, the ban on assignment of receivables imposed by larger businesses can both limit and prohibit many SMEs from accessing much-needed working capital, stifling growth and placing pressure on cashflow.

“The government’s proposals are a positive development and will undoubtedly support the growth of a wider number of businesses throughout the country, in turn boosting economic growth.”

Source: SME Web

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British SMEs net £15m through alternative finance

Small businesses rejected by high street lenders have been able to source more than £15m through the government-mandated Bank Referral Scheme since the scheme was launched in November 2015.

Figures released this morning (31 August) showed in the last 12 months, 670 businesses raised more than £12m of funding through the scheme, four times the amount raised in the previous year.

Since it was introduced in November 2016, more than £15m has been sourced for businesses across the country and more than 900 British businesses have been matched with alternative lenders, the government said.

The bank referral scheme was created by the Small Business, Enterprise and Employment Act 2015 to allow the UK government to keep an eye on businesses and their requests for business finance.

It allows businesses rejected by a high street lender to have their details referred on to designated finance platforms, which will then seek to help them get a loan from alternative lenders.

John Glen, economic secretary to the Treasury, said: “From breweries to beauticians, more than 900 British businesses have been matched with the funding they need to grow since we introduced our scheme.

“Small businesses are the backbone of Britain, yet many give up on their plans to expand if they can’t get a loan from their bank. Now however, thanks to our match-making scheme, they have another shot.”

Under the scheme, businesses are automatically offered the opportunity to be referred to three online credit brokers, including Alternative Business Funding, Funding Options and Funding Xchange.

Each platform provides businesses the access to a range of lenders and products, including business loans, revolving credit, asset finance and invoice finance.

Over the past year, loans resulting from the scheme ranged from as little as £100 to £1.3m and the average size of a loan secured was £17,285.

But Alan Chan, director and financial planner at IFS Wealth and Pensions, warned businesses should read the fine print of Bank Referral Scheme loans to avoid making a “costly mistake”.

He said: “The scheme is a good idea in principle because banks aren’t the only place to get funding and there are a lot of specialist lenders that are not on the high street.

“As with any loan, it’s important to fully understand the repayment terms and to read the small print. If there’s any doubt as to what they’re getting themselves into, then they should always trust their instincts and get some professional legal advice before they make a costly mistake.”

Alice Hu-Wagner, managing director for strategy, economics and business development at the British Business Bank said: “One of our key objectives at the British Business Bank is to encourage and enable smaller UK businesses to seek the finance best suited to their needs.

“Just over half of smaller businesses consider only one provider when they need funding, however, with over a quarter putting their plans on hold or giving up altogether if they aren’t offered the full amount they were seeking.”

Source: FT Adviser