Treasury wants banks to increase loans to small businesses

In an attempt to persuade UK banks to lend more money to small businesses, the CEOs of major UK banks were summoned to a meeting with Alistair Darling and Treasury officials.

It's clear the Government is distinctly unhappy with the way banks are acting at present. It feels the banks have reneged on an agreement, reached as part of their rescue deal, that they would continue to lend to small businesses at a certain level.

"Money and insurance provided by the Government should ensure banks lend at the level they agreed to", said a Government spokesperson.

But when the Government agreed to save RBS and Lloyds Banking Group with an injection of £37 billion of taxpayers' money and insurance guarantees of some £600 billion, it seems they failed to stipulate the level of interest the banks charge for loans to small businesses.

So despite the Bank of England base rate being at a record low of just 0.5%, and LIBOR under 1.0%, when banks do agree to lend to small businesses they are typically charging interest rates of between 6% and 8%.

Some banks are also accused of turning small businesses away from loans under the Enterprise Finance Guarantee scheme, forcing them into other, more expensive loans that are more profitable for the banks.

After meeting the bank bosses Alistair Darling told reporters, "While in some areas there have been improvements, in others there is an awful lot more to do. I think in relation to small and medium-sized enterprises, we need to be satisfied that the lending agreements entered into are honoured and that every single business gets a fair deal,"

In response to the meeting, Shadow Chief Secretary to the Treasury, Philip Hammond has called on the Government to “stop talking and start acting” in order to get banks lending to businesses again.

“After all the fuss and fanfare around today’s meeting, the outcome will not make one jot of difference to struggling businesses up and down the country”, he added.

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Darling to press banks over lending

Chancellor Alistair Darling will meet the chairmen and chief executives of Britain's largest banks over concerns that lenders are still failing to provide adequate capital to businesses.

Representatives from Lloyds, Royal Bank of Scotland, HSBC and Barclays will be present at a meeting with the Chancellor today.

Following the government's £37bn bank bailout and interest rates being held at a historic low of 0.5% for several months, there are concerns in the government that banks are not doing enough to help provide finance to individuals and companies.

"We [the government] are playing our part, the banks have got to understand that the public will not understand it if they do not play their part to the full," said Mr Darling.

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Small business lending increases in May

The latest figures from the British Bankers' Association (BBA) show that lending to small businesses rose in May. According to the BBA's statistics, lending to small firms increased by £153 million in May, compared to April, while over 45,000 new small business banking relationships were established.

For more on this story go to:
http://www.bba.org.uk/content/1/c6/01/62/98/Small_Business_Monthly_Press_Release%20May%2009.pdf


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EU unveils micro-credit plan for small businesses

The European Commission unveiled plans to free up 100 million euros (142 million dollars) from the EU budget to provide credit to people wanting to set up small businesses.

When supplemented by funds from international financial institutions like the European Investment Bank group, the Commission said, around 500 million euros would be available for micro-credits.

The plan could help people struggling to find money because they are too young, have been unemployed or due to the credit crunch sparked by the global financial and economic crisis.

"This new facility will extend the range of targeted financial support to new entrepreneurs and help them to overcome the squeeze on credit," Commission President Jose Manuel Barroso told reporters.

Read more: http://www.eubusiness.com/news-eu/1244044932.35

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Business lending remains weak

Lending to businesses remained weak in April, according to the Bank of England's Trends in Lending report. In particular, lending to firms in the wholesale and retail trades and the manufacturing sector fell sharply over the past year. The report also highlighted that approval rates for lending to small and medium-sized businesses are falling but added that some lenders are expecting availability of credit to improve over the next three months.

For more on this story go to:
http://www.bankofengland.co.uk/publications/other/monetary/TrendsApril09.pdf


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The Carbon Trust is offering £100m worth of interest free loans to SME businesses who invest in energy efficient plant and machinery

The scheme will be open to those looking for between £5,000 and £200,000, with the money being given out over the next two years.

“The size of the loan offered and its repayment period will be based on your projected CO2 savings, which will be assessed by the Carbon Trust,” explains the trust’s website.

Impressively, the application process has been sliced down to an average 10 days (the 763 businesses who secured loans last year had to wait four to six weeks). This is a far sight less time than the three to four months grants and other government-backed finance often take.

“Come and get it”, said Hugh Jones, director of solutions at The Carbon Trust. “There’s always been financial benefit from carbon saving but we are bringing it closer to home by offering the money interest free.”

The government increased the trust’s loan fund in this year’s Budget, meaning around twice the number of businesses should now be able to access the loans.

Tom Delay, chief executive of the trust, pointed out companies could reduce their energy costs by up to 20% by investing in energy efficient plant and machinery.

Find out more here: http://www.carbontrust.co.uk/energy/takingaction/about-loans.htm

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European Investment Bank's €15bn fund for SMEs

In the current economic climate it is more important than ever to ensure that you are doing everything possible to increase your company's access to finance.

The European Investment Bank set up a €15bn fund in September, that the first UK banks signed up to in January, with the sole purpose of lending money to small and medium-sized firms at a discounted rate over the full term of the deal.

UK Banks signed up for the EIB's scheme include; The Royal Bank of Scotland/Natwest, Barclays Bank, Close Brothers, and most recently, Abbey. RBS is borrowing 250m, Barclays 150m and HBOS secured a 250m loan to lend to UK SMEs.

Any small and medium-sized business that employ less than 250 staff and have a viable business plan can apply to any of these banks for access to the EIB loan.

Find out more: click here.

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Cashflow forecasts

A cashflow forecast is an essential management tool. You need to know what monies are owed to you at any one time and when payment is likely to be received. You then need to know what bills you have to pay and when – and reconcile the two to make sure you have enough cash to meet your outgoings.

“What we often find is that businesses come in asking to extend their overdraft facility because they are not being paid on time or they have suffered a bad debt. Often they leave this until the last minute – when they need the money rather than arranging an adequate facility well in advance. The reason why they are in this situation is usually because they don’t have an adequate cashflow forecast – or any at all. If you cannot prepare one of these yourself, ask your business advisor.”
Mike Ford, Senior Business Manager, North Staffordshire Business Centre.

Calculate the worst case scenario in terms of cashflow – and that is the facility you should be trying to arrange.

Also look at ways of reducing your need to borrow such as:

• Reviewing who you are extending credit to – and how much credit you are extending to each customer
• Reviewing how long you are allowing your customers to pay you – and seeing if this can be shortened
• Negotiating longer payment terms yourself – so you have longer to pay


Financing cashflow: the options

• Overdrafts: Ideal for day-to-day cashflow needs – but you may need to consider other options if you are near your limit, cannot arrange a larger facility, or want to reduce the monthly cost or free up your facility for working capital.

• Loans: These spread the cost of borrowing over a longer period – consider putting the element of your overdraft that is “solid debt” into a loan to free up your working capital.

• Invoice discounting: This will release cashflow more quickly. Invoice Finance can give you up to 90% of the invoice value when it’s issued, and the rest (less fees) when it is paid. It can provide bad debt protection too as the invoice discounter can assess your customers and set credit limits for each of them. If a customer becomes formally insolvent, you will be paid 100% of what is owed provided you trade within these limits.

• Asset financing/leasing: This can release cashflow tied up in depreciating assets such as company cars, computers and machinery and equipment. The finance is secured on the asset itself, freeing up your other security (often your property) to secure and raise other forms of finance. Installation, maintenance, servicing and insurance can all be included, making your life easier.

For free business planning software - click here.

For a free business plan template, click here.

For a free cash flow template, click here.


[Extract from Trading Through The Economic Downturn - published by NatWest - full Guide available by clicking here]

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