Business Funding News

StartUp Britain is a national campaign run by and for entrepreneurs to stimulate start-up growth in the UK. They have launched a free week-long schedule of events for the nation’s budding business talent in an attempt to help them secure early stage investment.

Latest figures from the Bank of England reveal that bank lending in the quarter to January 2012 was £5bn lower than the same quarter a year earlier. This has resulted in the creation of this London-based event that seeks to guide entrepreneurs through both traditional and alternative finance arrangements.

Access to finance has been identified as the biggest single barrier to growth. Furthermore, start-ups usually only need small amounts of funding! StartUp Britain aims to host an event to present all funding options and opportunities to SMEs. The event will be running from 14th - 18 May 2012. Check event details.

More ominous signs in the news today signaling that securing a bank loan, either as an individual or as a business, is set to become even tougher!

This is due to this year having the highest level of write-offs on corporate loans since the 1990s. A survey by the Ernst & Young Item Club predicts that the amount leant by UK banks will contract by 6.8% in 2012 to £419bn - a long way off the £575bn peak in 2008. This huge difference is due to an overwhelming 1.9% of business loans being written-off; a proportion not seen since the recession of the mid 1990s.

Furthermore, research showed that insolvencies were likely to rise most sharply in the North-East and Wales, while a decrease in lending to manufacturers will no doubt compound the issues and hence worsen the outlook for the region.

The inevitable decrease in mortgage lending will also be felt worst in the North. The survey revealed that “any growth will be spread very unequally across the country” and that “The north-south divide that we are forecasting in economic conditions is also likely to be reflected in housing market activity.”

So what significance will this have on the UK Business Funding environment? Clearly banks are no longer the ‘way forward.’ There are numerous other ways for a business to raise finance (without the use of a bank) - maybe we will see a shift towards these less conventional methods of funding.

Recent research from the Federation of Small Businesses has identified stark contrasts between the business funding environment for SMEs in the US and the UK.

Small businesses in the US have been spoiled for choice when it comes to raising finance; with 15,000 financial institutions competing to lend to companies. Half of these are banks, while the other half are credit unions. Whereas in the UK, 5 dominant lenders account for more than 90% of loans to SMEs - this is due to alternative finance providers having a poor profile in the market.

However, as banks have become much more risk averse and have tightened up their lending criteria accordingly, there has been a new push towards alternative finance arrangements such as Invoice Factoring, Invoice Discounting, Asset Leasing and ‘Peer to Peer Lending.’

There has been immense recent interest in online ‘peer to peer lending’ - a relatively new concept that allows individuals from any background to lend to SMEs and other individuals; examples include Funding Circle and Zopa. £100M - £200M changes hands on these online platforms per year - and this number is growing rapidly.

The UK business funding environment needs significant reform if we are to follow the model adopted in the US, but surely increased awareness and availability of these alternative lenders are steps in the right direction.

Finding funding for small and medium sized business - and in particular, bank loans - has arguably become the single most challenging aspect of trying to maintain growth during the current economic downturn. For the smaller business in particular, the credit crunch has arguably never gone away, and for many self employed entrepreneurs this has presented financial obstacles on two fronts. Tighter credit control has resulted in restricted bank lending, making it more difficult to secure both popular and essential personal credit products – like mortgages – and find business loans at a competitive rate. In this climate, monitoring the information recorded on your credit report online has never been more important. Experian, the largest of the three credit reference agencies in the UK, now provides access to these files through the creditexpert.co.uk credit report online service – but just why is it so important to check this information before applying for a loan?

Well, it turns out that your personal credit rating can affect your ability to secure a business loan. Although the lender will of course be paying close attention to your business finances and projections, they will almost certainly do a credit check on you personally – particularly if they're going to ask for personal security of some form. A low personal rating can therefore damage your chances of securing a business loan.

Before we begin it makes sense to nail down exactly what we mean by credit rating. The concept of the credit rating is now part of the popular consciousness, but rarely has such a relatively straightforward idea been so widely misunderstood. While the idea that credit ratings can go up and down over time is not too challenging, many people still view a personal credit rating as a fixed score that applies universally to all credit providers, and all credit product applications.

When you think about the range of lenders and credit providers out there – and therefore, the number of distinct business models – the idea of a universal credit rating seems a bit less logical. After all, not every product or service is aimed at the same type of customer.

Lenders will typically use a credit scoring procedure that is specific to each product when assessing an application. Like the actuarial processes underpinning insurance, historical data from real customers is used to create profiles of different types of customer, with a view to predicting future behaviour and identifying the target customer for each specific product. This means that the same person can have a several different credit ratings, each the result of a specific application process.

As a detailed record of your history of managing credit accounts, credit reference files – commonly known as credit reports – understandably play a hugely influential role in credit scoring procedures. Inaccurate information on your credit report can be enough to block an application, even if there are no defaults or other bad credit issues in your credit history.

One of the reasons for this is that your credit report is also used for the separate process of fraud scoring. As well as the information about previous credit account management that lenders share through credit reference agencies, your credit report also brings together information from public sources like the electoral roll. The electoral roll is an important proof of identity, and if your credit report simply requires an update following a change of address it is essential that this correction takes place before you apply for any loans. For more information about credit ratings, try looking here.

A recent study by Boston Consulting Group (BCG) suggests that the internet contributes 8.3% of the UK economy - a bigger share than for any other G20 major country.

The internet generated £121bn of income in 2010 - a value worth £2000 per person. This value exceeds equivalent figures for either the healthcare, education or construction sectors.

Furthermore, the UK carries out more online retail than any other major economy. 13.5% of all purchases in 2010 were carried out over the internet and according to BCG this figure could rise to 23% by 2016. BCG also project that by 2016 the total generated income through the internet will reach £221bn - This represents a rate of growth of 11% per year. Projected future growth rates for China and the US are 5.4% and 6.9% respectively.

The research goes on to explain that there is a clear indication of the UK public’s growing affection towards the internet with some 65% of people saying they would give up alcohol to maintain their broadband connection. This is clearly good news for both UK SMEs involved in the Internet sector and also investors into UK Internet based ventures. Hopefully this will make it easier for Internet based SMEs in the UK to attract the funding finance they need in future years.

Banks not lending? Need to borrow a relatively small amount, say £10k-£100k? Then you could try P2P (peer-to-peer) lending, which allows individuals to lend directly to businesses. Some of the most famous P2P marketplaces include Zopa, Funding Circle and Thin Cats.

But what if you need larger amounts? Well, help may be on its way. The government has suggested the creation of an agency that would bundle together small business loans. This would presumably not only increase the amounts available for companies to borrow, but also attract the attention of private investors who may see this as a profitable activity.

If you're currently looking for grants then you'll know that they're rather hard to find and secure at the moment. Luckily, help is at hand! Smallbusiness.co.uk have recently launched a new iPad and iPhone application which features case studies of businesses that successfully achieved a grant, along with a list of the 118 assistance schemes available to those in business and starting up – powered by businessfunding.co.uk.

To find out how this guide could benefit you, take a look at the guide's introduction.

The guide costs only £2.49 and is available to download now for your iPad or iPhone.

Don't have an iPhone or iPad? No problem! The guide is also available to order in PDF format.

Here at Businessfunding.co.uk we’re all about business funding. However, whether you need funding or not it’s always worth also checking out your costs. We have been thinking about very easy ways for business owners to save money and thought we’d share these three ideas.

• Businesses should always ensure they are operating out of an appropriate office space. An ‘appropriate office space’ is dependent on the size of the business, the sector it operates in and the services it provides. For example, an international consulting company may need a much larger and more impressive office space than an SME that produces software. Many factors need to be considered when choosing an office space but above all it must be cost effective. Take a look around where you are now - is it really suitable? Could you cope with a smaller space, or perhaps one further out of town and therefore cheaper? Moving is a pain but costs are painful too! 
• You should always negotiate any contract relating to a variable cost. The objective in business is to make as much sustainable profit as possible. As business owners know, it is often very difficult to increase revenue. Instead of concentrating all their efforts on this, businesses should make sure that they are maximizing their returns by minimizing their costs. For a Tech Startup this may mean buying any electrical components used in the manufacture of their product at the lowest possible price, or paying the lowest possible fee for any services that have been outsourced, e.g. accountancy services.
• Finally, a bit like your personal finances, take a look at your debt. Businesses can improve their ultimate likelihood of success by ensuring that they have no credit card bad credit or other outstanding interest bearing debts. Minimizing debts early on can pay dividends down the line and prevent your business getting stuck in a vicious circle!

Stephen Bence, one of the directors of businessfunding.co.uk, is quoted in today's Daily Express frontpage story: 75% of British people are happy despite Europe's economic woes.

The government announced that four more lenders became accredited under the Enterprise Finance Guarantee scheme, which aims to facilitate the provision of credit to business with insufficient collateral. This was accompanied by news that the upper revenue limit for companies that can access the EFG has been increased to £41m from £25m. This increase is good news, provided it doesn't cause a lack of focus and makes it harder for companies at the lower end of the spectrum to raise money. Here at UKFunders we're eagerly awaiting for statistics on the uptake of this scheme!