July 2012

Oasis Crescent launches sharia funds in Britain

Oasis Crescent, a South African firm, are one of largest sharia asset managers around the globe.

They have opened an office in London and launched 6 funds with a hope to attract business from Britain’s estimated 2 million Muslim population by launching products – such as bonds, equity and property funds – which adhere to Islamic principles including a ban on interest.

Oasis believe they can turn the UK into a hub for Islamic Finance. This is ambitious, given that the UK is home to less than $1.55bn out of $58bn global sharia fund assets, according to E&Y estimates.

However, Oasis still sees potential for the British market to reach 120-160 billion pounds over 10 years.

Zurich launch SME Risk Index

According to a new SME Risk Index from global insurer Zurich, 11% of British SMEs say they have considered closing down in the last quarter.

84% of SME decision makers are fairly concerned about the UK’s economic climate, of which 38% very concerned. 84% say they are not confident that the economic situation will improve in the next quarter, and 69% are not confident when looking ahead to next year.

There are 4.5 million SMEs in the UK; if we consider that 11% of these have thought about closing down – this does paint a very gloomy picture about current business confidence.

17% of SMEs based in the North have considered closing down, compared with just 5% in the Midlands, 7% in London and 12% in the South. Looking at these numbers, we can see that there is clearly a regional disparity in business confidence between the North and South.

Despite all of this, Britain‘s SMEs are fighting back and many decision makers are actively reviewing their business models and looking at various new opportunities. According to the SME Risk Index Survey, when posed the question of what decision makers see as their biggest opportunity for their business, 33% said business innovation, 30% said cost and expense reduction and 22% said web trading and online marketing.

Furthermore, in the last quarter, 58% of SMEs have expanded activity to target new customers and 33% have expanded their business offering.

RBS slashes interest rates for small firms

Yesterday, UK banks RBS and NatWest announced that they will use the Bank of England’s ‘Funding for Lending’ scheme to enable them to offer an average 1% reduction in interest rates for SMEs.

The RBS Group has stated that they expect the new rates will save SMEs £4,000 on the average cost of a loan and will save around £100m over the life of the scheme. The scheme is due to be introduced from 1st August 2012.

The RBS Group also announced that there will be no arrangement fees on £2.5bn of new lending – saving SMEs a further £40m in fees.

Raise money through crowdfunding

SmallBusiness has released a new guide on how to raise finance through crowdfunding and peer-to-peer lending websites. Their free digital guide, ‘Raise Money Through Crowdfunding’, is part of their Small Business Finance iPad and smartphone app series. It is a comprehensive resource on the new and exciting world of social funding and how companies can access new online sources of finance. 

Times are tough for small businesses seeking funding, and many entrepreneurs feel their only options to raise money are family and friends… and the much-maligned banks. The guide includes case studies and video clips of businesspeople who found an alternative and raised money online. It also features tips on how to put together a successful application from the founders of the sites themselves.

To hear more about what crowdfunding and peer-to-peer lending websites can offer small businesses, download the free guide here.

UK government pledges funding for low-carbon vehicles

Today, The UK’s innovation agency – the Technology Strategy Board has announced that the Government is looking to speed up the commercialization of low-carbon vehicle technologies with both public and private sector investment totaling £56m.

Over £27m of public funding, along with £29m of private sector money, will be invested in 17 research and development projects led by carmakers such as Ford, Jaguar and Nissan.

Transport Minister, Norman Baker commented “Accelerating the commercialization of low-carbon vehicle technologies will help to achieve our challenging climate change targets as well as creating new jobs, and increasing opportunities for UK businesses on the world stage.”

Lending to businesses and households to fall further

Ernst & Young ITEM Club’s recent report on the financial services sector forecasts that the UK’s double-dip recession would result in consumer credit shrinking to 10.5% this year, instead of the 7.6% forecasted just three months ago.

Corporate lending is also forecast to decline by 6.2% this year – a similar rate to last year. This will contribute to an overall fall in lending by the banking sector of 2% in 2012, sharper than last year’s 1.6% fall.

In addition to the above, the ITEM Club remarked that they are not convinced by the effectiveness of recent policy initiatives (e.g. “funding for lending”) in curbing this downward trend in lending.

The prolonged period of recession has also (slightly) raised the ITEM Club’s forecast for corporate write-offs to 2% of outstanding loans, which is the highest rate since the 1990s.

However, this is deemed to be due to us being at the peak of our current economic cycle and improved conditions next year are likely to stem the tide.

Infrastructure plan: UK to guarantee investments

Chancellor George Osborne said that the UK Guarantees Scheme – whereby the government will underwrite up to £40bn of investment in infrastructure – will help release private sector funds, kick-start schemes which have stalled due to lack of funding and hence lift the economy.

The government will underwrite funding into a range or sectors, including transport, energy, communications and education.

One major criteria that makes a project applicable for this funding is that it must be able to begin work within 12 months.

It must be shown that the project will have a positive impact on economic growth in addition to being good value for taxpayers.

WIth all these constraints in place, some officials believe that the scheme will prove to have little of its desired effect, because the projects for which the scheme would be applicable would need to be perfect in every possible respect, but somehow not quite perfect enough to get up and running entirely on its own.

Only time will tell! – The government hopes the first guarantees will be made in the autumn.

The Differing Needs of Lenders and Investors

Ernst & Young recently conducted a survey of 1000 entrepreneurs – more than 2/3 of them found it difficult to secure the funding they need to grow.

Funding can be divided at the most basic level into Lenders (loans, asset finance & invoice finance) and Investors (equity). Lenders loan a business money for a period of time and look to get repaid with a return. Investors are looking to buy a piece of your business in return for long-term capital gains when the price of your business’ stock increases.

Many entrepreneurs fail to secure funding because they fail to distinguish the motivations of these different types of funders.

To generalize, lenders are not interested in your long term vision for the business. They are solely concerned with risk management and the ability of your business to repay the credit that they have provided for you.

To maximize the likelihood of securing finance through a lender, you must have a financial plan that will allow for debt repayment and must have assets that the lender can take as security in the event that you default on repayments.

Investors are tougher to generalize as they come in all shapes and sizes with different expectations and motivations. We can subdivide equity investors into Angel investors and Venture Capital investors to make this murky water a little clearer.

Angel investors prefer to invest in businesses that can quickly get to cash flow positive, whereas VCs seek businesses that can grow very quickly and become very valuable.

Both Angel investors and VCs are looking for an exit strategy – this means they want to sell their share of the business at some point to turn a profit. For this reason, if your business is a lifestyle business, i.e. you’re planning on running the business for the rest of your life, then Equity investment is unlikely to be appropriate.

So the lesson to learn here is to be clear on your goals for the business and only approach those funders whose goals are well aligned with your own. For some this may point towards Equity and for others Loans. There is no right answer as every business is different. For tips on what type of funding may be most appropriate for your business, take a look at http://www.businessfunding.co.uk/services-item/.

IMF lowers UK's growth forecast

Earlier today, the IMF (International Monetary Fund) significantly lowered its UK growth forecast for 2012 to 0.2%. In addition, it warned the risks from the eurozone debt crisis are a constant threat.

The IMF also lowered its expectations for the UK’s growth next year from 2% to 1.4%.

Meanwhile, growth in emerging markets, such as China and India, has slowed and the IMF admitted that previous forecasts may have been too optimistic.

It now predicts emerging market growth of 5.6% this year, a value that is slightly lower than its previous estimate.

The global economy will grow by 3.5% in 2012 and 3.9% in 2013, again, lower than its forecast three months ago.

On an even gloomier note, the IMF has slashed its growth forecast for the UK by more than for any other developing country.

A Treasury spokesman said the eurozone crisis was impacting on the UK economy but said the new “funding for lending” scheme would encourage banks to lend to small businesses.

SMEs urged to think outside the financing box

According to a paper published by the Centre for the Study of Financial Innovation, bank lending to SMEs is on the decline as banks are under increasing pressure from regulatory bodies to shrink their balance sheets.

The report suggests that SMEs in need of funding should consider internet platforms for new funding sources, e.g. Seedrs – an FSA-authorized equity crowdfunding platform for investing seed capital.

There are also P2P lending sites such as Funding Circle, where small businesses can take out loans from a pool of lenders (including both businesses and individuals).

The government has been trying to foster angel investment in the UK. A recent example is the Angels in the City program – launched in April to produce 125 new angel investors by March 2013. ‘Angels’ are high net worth individuals that are capable of providing capital for a business start up.

Earlier this year, the UK government published its own report on SME financing, the Breedon report, which encouraged UK businesses to pursue non-bank financing. George Osborne announced in his March budget that the government has allocated £100m of its £1bn credit easing scheme, the Business Finance Partnership, to smaller businesses. Lending will begin in the autumn.