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How invoice financing could help London businesses

Setting up and running a business in London offers a lot of fantastic opportunities across many industries, from finance and technology to catering and more. With these opportunities and the chance to grow comes plenty of obstacles and challenges though. As one of the most expensive cities in the world, the costs can set many back. Invoice finance can offer a solution to many London businesses in various ways.

Cover the rent

One of the largest expenses for any London business will be renting office space. The housing market gets a lot of attention due to its ever-increasing prices in the UK’s capital city with less paid to commercial buildings. In London the average cost per person to rent office space ranges greatly between £650 to £1400 per person. This is more than double and at times triple that of that in Birmingham, Manchester and Leeds. Invoice financing can help provide the finance at the start of the month to cover rent before clients pay their invoices.

Get ahead of the competition

Most other businesses know the value of setting up at least a base in London, meaning whichever sector yours works in there will likely be plenty of competition nearby. Invoice financing offers the opportunity to grow your business by providing finances up front that you are owed by clients. Rather than hold off from any ambitious projects until they have settled, you can use these funds to grow and take advantage of opportunities your competition in London may otherwise miss out on.

Stay on top of bills

The main thing that kills 25 per cent of businesses is poor cash flow. In London especially, this can occur due to costly bills and overheads going out before client payments have landed. With invoice financing your cash flow process can be smoothed over by having easy and quick access to the cash required when it’s needed. This can ensure you stay on top of bills and don’t become one of the 25 per cent.

Starting up

London provides a great environment for starting a business, with it a go to place for technology and financial start-ups. Along with ensuring you have enough initial capital to get started, you will need enough to cover the costs and develop growth. Invoice financing can help work towards this if your capital starts to run out and the business has to wait a few weeks or months before clients are due to pay (with little room to negotiate being a small company).

Starting or running a business sin London can be highly successful and invoice finance could be a solution worth investigating to create a strong financial process.

Source: London Loves Business

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North’s SMEs have highest level of debt in the UK

NORTHERN Ireland SMEs have the highest level of debt out of all UK regions, new research has revealed.

With a debt of £98,192 per business, the north is the most indebted region, according to UK company formation experts, Turnerlittle.com. SMEs in Northern Ireland were found to have the highest debt level in the UK – owing almost three times the national average (£33,840) and more than four times borrowed by those in east England (£22,472) which is the least indebted region per business.

After Northern Ireland, the highest debt levels per business were observed in the south west of England (£44,838), Scotland (£41,975) and Wales (£41,972).

In all seven out of 12 regions exceeded the average national debt per business.

Turnerlittle.com also looked at data from UK Finance on business lending by cities and towns. With a staggering debt of £357,770 per business, Exeter was found to be the most indebted city per business in the UK, followed by Gloucester (£296,110), Ipswich (£233,171) and Norwich (£229,074). The lowest level of debt per business was observed in Sutton (£18,825), followed by Wigan (£21,812), Sunderland (£24,576) and Luton (£27,391).

Turnerlittle.com investigated the levels of SME borrowing, analysing the latest data from UK Finance to assess how the UK’s debt crisis has affected businesses. The data revealed that unlike consumer borrowing, SME borrowing in 2017 remained stable. But when the amount borrowed was compared with the number of active businesses from the ONS dataset on Business demography, significant regional differences were observed.

Managing director of Turnerlittle.com, James Turner the level of business debt is a concern.

“Even though we didn’t find any direct correlation between the level of business debt and economic productivity, abnormal deviation from the national average in either direction probably isn’t a good sign. While excessive borrowing often goes hand in hand with financial hardships, extremely low debt levels may indicate that businesses are perhaps not investing enough in innovation, research and development. Either way, it’s bad news for the economy.”

Source: Irish News

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Are business loans still viable with Brexit?

Most start-ups need third-party investment to get off the ground. Sometimes, even established companies take out a loan to use as working capital. Whatever the reasoning behind them, business loans are an essential investment type for all manner of businesses, small and large, who wish to borrow. This has been the case for hundreds of years, and British banks and building societies have been happy to show faith.

Is Brexit a spanner in the works?

A spanner has been thrown into the works recently, however. Its name is Brexit, and it has lenders stifled. Some would say worried. There are several reasons for this. Many lenders are worried that Brexit could invalidate their long-term loan contracts with businesses in Europe. Some lenders are worried that a hard Brexit could go as far as to stop them from seeking new business in Europe.

These worries are tangible, and understandable, from both a lender’s point of view and the borrower’s. But do they translate into lenders tightening up their loan applications, and reducing their faith in small business?

The answer is no. Or at least, not yet.

It must be said that banks are reducing lending. It is now harder for people to get a mortgage, for example. However, businesses are still being funded right now, by major banks operating out of London and smaller banks alike. Independent lenders too are mopping up business tidily, committing several million through business finance and asset-backed lending. This is excellent news for small business.

Additional challenges of Brexit for business loans

SMEs do face another challenge with Brexit and lending, though. It is not just unique to them, but it affects them more than large enterprises. That challenge is currency volatility, or the unpredictable movement of exchange rates. If Britain has an unstable economy, then that could cause lenders to shift towards lending to larger businesses over SMEs, because big business is less affected by an instable economy overall. Unfortunately, this does mean inconsistencies with lending procedure month-to-month.

It’s fair to say that the result of the Brexit referendum took most lenders by surprise. Since the result was announced, lenders have attempted to determine what the result means for them. Thankfully, the following months showed that the leave result was not the catastrophe that some economists would have had us believe. Banks have not moved their headquarters from London. Small businesses are still thriving.

The bottom line with lending and Brexit…

Business loans are still viable with Brexit. Start-ups can expect funding as can larger enterprises. However, the need for a sound application is more important than ever before.

The viability of business loans with Brexit is simple – lenders are still lending during the Brexit negotiations. And they will continue lending after them. Specialist corporate finance companies will be the big winners, however, as traditional banks show uncertainty. Expect to see a lot more from finance specialists who offer start-up loans, business finance and equipment refinance solutions to British business.

Source: London Loves Business

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Larger SMEs more optimistic about growth

New data for the final quarter of 2017 by BDRC’s SME Finance Monitor, based on more than 130,000 interviews, reveals that current demand for finance remains limited, but ambitious SMEs are more likely to be financially engaged.

Shiona Davies, Director at BDRC, commented“There have been no dramatic market changes in SME sentiment since the referendum. Whilst there are some increased concerns about the economy and political uncertainty, larger SMEs in particular are more likely to be planning to grow and to be using finance, as are those SMEs with a long term objective to be a bigger business.

“Four in 10 SMEs are planning business activities that might benefit from funding, but SMEs are as likely to think they would fund a business opportunity themselves as approach a bank for funding. Awareness of equity finance, which could provide longer term funding, appears limited even amongst larger SMEs. For those who do apply for a loan or overdraft, success rates remain high. However, first time applicants’ success rates are currently lower than in 2015, albeit still higher than they were in 2012. Additionally, fewer SMEs who are not currently using finance show any appetite to do so.”

Key findings

Use of (and demand for) finance remains limited, as self reliant SMEs use trade credit, credit balances and financial support from directors in addition to external finance. Awareness and use of longer term equity finance is also limited.

  • In 2017, 8 in 10 SMEs (82%) were profitable and 42% reported having grown, both little changed from 2016.
  • 38% were using some form of external finance, but more (47%) met the definition of a ‘Permanent non-borrower’ with little apparent appetite for finance, similar to 2016.
  • 7 in 10 SMEs (70%) would rather grow more slowly than borrow to grow faster and this has changed little over time.
  • Fewer SMEs in 2017 were ‘happy to borrow to help the business grow’ (34% in 2017, down from 45% in 2016) and the proportion of SMEs who are not using finance but would be willing to do so in future has declined over time (24% of all SMEs in 2015 to 16% in 2017).
  • A third of SMEs (35%) received trade credit and 25% hold more than £10,000 in credit balances. In both cases, most of those with trade credit or credit balances say it reduces their need for finance.
  • 29% have received an injection of personal funds from the owner/director. Given a (hypothetical) opportunity that would require finance to achieve, 39% said the directors or the business would provide the funding, compared to 37% who would approach their bank for funding. 1 in 5 SMEs (19%) would not take up the opportunity because of concerns over the risks associated with debt.
  • In 2017, 5% of SMEs reported making a new or renewed loan or overdraft application in the 12 months prior to interview. This was unchanged from 2016 and remains at half the level reported in 2012 (when 11% of SMEs had made such an application).
  • Overall, 15% of SMEs in 2017 reported any kind of borrowing ‘event’, and 2% had wanted to apply but something stopped them (the Would-be seekers). The Happy non-seekers (83% of all SMEs) remained the largest group, in line with 2016.
  • In a new question for H2 2017, 62% of SME companies said that equity finance was a form of funding that they knew nothing about. Larger SMEs were somewhat more aware, but even amongst those with 50-249 employees, 52% knew little about this form of finance with just 6% of them using or considering using it. 1 in 5 companies were aware of equity finance, but thought it was not a suitable form of finance for them – this varied little by size of company.

Whilst appetite for finance remains limited, a consistent 8 in 10 of those who did apply for a loan or overdraft were successful – although those applying for new money for the first time were somewhat less likely to be successful than in other recent periods.

  • 80% of all loan and overdraft applications made in the last 18 months (to Q4 2017) were successful, in line with other recent periods.
  • Almost all renewals in this period were successful (97%).
  • Applications for new money on loan or overdraft have always had a lower success rate than renewals. For the 18 months to Q4 2017, 63% of applications were successful. This was lower than was seen in the 18 months to Q4 2015 (when 70% of new money applications were successful), but remained ahead of the 49% who were successful in the 18 months to Q4 2013.
  • Success rates for new money applied for by those who had borrowed before was stable (78%), so this decline in new money success rates was due to a lower success rate for first time applicants (currently 50% compared to a success rate of 60% for applications made in the 18 months to Q4 2015). However, as with overall success rates, this is higher than was seen in the 18 months to Q4 2012 and to Q4 2013 when 4 in 10 first time applicants were successful.

Looking forward, whilst more SMEs with employees are planning to grow, there are some concerns about the economic and political climate. Future demand for finance remains stable, but it’s worth noting that a quarter of SMEs are ‘Ambitious risk takers’ with a greater engagement with finance and 4 in 10 SMEs are planning a business activity that might require funding.

  • 45% of SMEs in 2017 were planning to grow. This is somewhat lower than the 49% planning to grow in 2012, due to declining levels of growth amongst 0 employee SMEs (46% to 41% over this period). Growth aspirations amongst SMEs with employees was in line with, or higher than, their aspirations in 2012.
  • The top 3 barriers to running the business remained “legislation and regulation” (15% in Q4 2017), “political uncertainty” (15%) and the “current economic climate” (14%). 29% of SMEs mentioned at least one of these as a barrier in 2017, up from 22% in 2016.
  • 12% of SMEs in 2017 were planning to apply for finance, unchanged from 2016 but increasing quarter by quarter from 10% in Q1 to 14% in Q4 2017. Confidence that the bank would agree to lend was somewhat lower in 2017 at 50%, and remained below the actual success rates achieved. Most of those planning to apply were already using finance.
  • 27% of SMEs in H2 2017 agreed that they both wanted to become a much bigger business and that they were prepared to take risks to succeed. These were more likely to be younger, innovative businesses that were, in turn, more likely to use and to apply for finance. A willingness to borrow to grow was a key predictor of being one of these ‘Ambitious risk takers’.
  • 42% of SMEs in H2 2017 were planning to undertake one or more business activities that might require funding, including 19% planning to take on more staff, 17% planning to invest in plant and machinery and 16% planning to develop a new product or service. Larger and younger SMEs were more likely to be planning such activities, as were those planning to grow overall (61%). 19% of those planning any of these activities was also planning to apply for finance, compared to 8% of SMEs with no activities planned.

Source: SME Web

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Personal savings keeping two in five UK start-ups in business

Two in five (39%) small business start-ups say they have raided personal savings to keep their business afloat in the past year, according to new research from Hitachi Capital Business Finance.

As the start of 2018 marks a decade since the banking crisis and a prolonged period of cautious high street lending to small businesses, the new research suggests many UK small businesses are not turning to high street lenders to support their business – fuelled perhaps by the broadening issues around trust. Start-ups (businesses that are less than 5 years old) are almost twice as likely to use personal money as businesses that have been trading for 10 years or more (22%). In addition, the number of start-ups that have also turned to family members for a loan has increased from 10 per cent to 15 per cent over the last 18 months.

The findings suggest that even with the plethora of alternative finance options readily available today, many small business owners are not looking beyond their high street lender at the wide range of finance options available to them.

The reliance on personal finance over specialist finance is put into sharp focus given start-up businesses have ambitious plans for growth and expansion in the next three months. Compared to older businesses (that have been trading for a decade or more), start-ups are four times more likely to predict significant business growth in the next three months (14% Vs. 3%). Furthermore, to power this growth they are also more likely to be looking to expand into new markets (21% Vs. 16%); to invest in new equipment (17% Vs. 9%); to hire staff (16% Vs. 13%), and to move to a larger location (9% Vs. 3%).

Forms of finance used by small businesses over the last 12 months.

Start up (trading less than 5 years) Small business average
Own money/ cash 39% 28%
Money from family members  (i.e. either gifts or loan) 15% 9%
Overdraft 11% 15%
Government support (i.e. grants, finance loans, business support) 5% 3%
Standard business bank loan 5% 8%
Invoice finance 4% 4%
Finance lease 3% 4%
Peer to peer lending 3% 3%
Hire purchase 3% 3%
Borrowing from the business 3% 2%
Operating lease 2% 2%

In addition, owners of start-up businesses are far more likely to say that worrying about cash flow management keeps them awake at night (29 per cent compared to 19 per cent of owners of older businesses). This is probably explained by the combination of having bold expansion plans but not seeking external help on finding the right kind of funding.

Gavin Wraith-Carter, Managing Director at Hitachi Capital Business Finance commented: “It seems hard to believe that the banking crisis was a decade ago but the knock on effect of high street lenders being very cautious with lending to SMEs shows itself in this new study. The issue is not one of small businesses being turned down for finance, it is the fact too many start-ups do not trust institutions to, therefore are not tuning to them for financial help. Ten years on, my concern is there may be a widely held view by small businesses that high street lenders will just say ‘no’.”

Source: London Loves Business

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Britain’s SMEs Facing Triple Challenge Warns CYBG

Britain’s SMEs have recorded the worst business health reading since 2014, as rising business costs, a dip in confidence, lower net business creation and a lack of borrowing are taking their toll, according to the latest research by CYBG in partnership with the Centre for Business and Economics Research (Cebr).

CYBG’s quarterly SME Health Check Index dropped to a score of 42.0[1], down 48% since 2014 and the fifth consecutive quarterly fall[2], suggesting a worsening business and macroeconomic environment since the EU Referendum in June 2016 and the ongoing Brexit negotiations.

David Duffy, CEO of CYBG, said:

“SMEs are the lifeblood of the UK, helping to drive growth, create jobs and sustain economic health. But SME confidence appears to be in short supply as many small firms are seeing rising business costs alongside continuing skills shortages.

“Businesses are scaling back their investment and borrowing due to the wider economic uncertainty, contributing to the decline in the Index. The Government’s business rate changes in last November’s budget were appreciated, but in the current environment, SMEs would welcome more incentives to address skills shortages or further tax reductions to manage costs and restore confidence.”

Representing 5.7 million enterprises, or 99.9% of total businesses in the private sector with a combined turnover of £1.9 trillion, the UK’s SMEs are unquestionably the heartbeat of the national economy. However, they are facing three key challenges, namely:

1. Rising business costs hindering growth: According to the Index, the costs faced by the UK’s SMEs grew at an annual rate of 2.6% in the fourth quarter of 2017, with one of the key drivers being a rise in employee costs, suggesting historically low unemployment may be beginning to push up wages.

The rise in business costs is hampering SMEs’ growth plans, and according to new research by YouGov – conducted on behalf of CYBG – almost a fifth (19%) of SMEs, representing over one million, say rising business costs have greatly hindered the success of their businesses. Of those, 42% said it has resulted in lower levels of investment back in the business; 35% have been unable to build up cash reserves; and, 28% said it has caused an inability to hire new staff.

2. SMEs dip in business confidence impacting investment : A key driver behind the Index fall, figures show that SMEs are less confident and borrowing less, with lending down 3.7% to £92.5 billion in the year to the end of Q3 2017, the largest drop since the Index began in 2014. In terms of the last quarter for which data is available (Q2 to Q3 2017), bank lending to SMEs fell by £1.9 billion, or 2% year on year.

Encouragingly, UK Finance data published at the end of February shows that lending to SMEs has stabilised in the final quarter of 2017, but firms delaying investment decisions remains a concern.

3. UKs skills shortage causing annual sales loss: According to CYBG’s research with YouGov, the UK’s skills shortage is leading to an estimated £7.3bn annual loss in sales for SMEs, equivalent to approximately 252,000 new jobs on an average UK salary[3] , and worth around £97 million in corporation tax revenues for the Treasury.

The research shows more than half (55%) the UK’s SMEs – representing 3.1 million companies[4]  – believe the failure in finding the right talent is impacting on the bottom line.

These firms say, on average, they are losing 18% – almost one-fifth – of potential annual revenue due to the skills shortage. According to calculations by Cebr, a leading economic think tank, this skills shortage leads to a £7.3 billion loss every year for Britain’s SMEs.

Relatively new and medium-sized companies say they are being hurt most by the inability to find the right staff, with three in five companies employing 50-99 employees or 2-5 years old particularly feeling the strain, suggesting that the skills shortage is threatening the very companies that are likely to be disproportionately responsible for the UK’s future growth.

Amongst those SMEs that have not been able to access the relevant skills, almost a third (32%) claim that they have been unable to grow their business due to the skills shortage.

As CYBG’s Index shows, the net balance of SMEs operating below capacity increased in Q4 2017 largely as a result of the UK’s tight labour market where the unemployment rate is at a historically low 4.4% and employment at a record 75.2%.

SMEs call for incentives and tax cuts

To help address these challenges, SMEs surveyed in the YouGov poll have identified a range of changes that could help alleviate the strain of rising business costs – around 20% of all SMEs believe that either a cut in VAT or further Corporation Tax relief would deliver the biggest benefit in the current climate.

While the Government has already made changes to business rates to support SMEs, 20% of SMEs employing up to 100 people state that further business rate relief could help most to alleviate the pressure of increased costs (compared to just 11% of larger SMEs – 100-249 employees).

On skills, almost 40% of SMEs said that an incentive for employers to invest in existing employee training could help bridge current skills gaps. An equal amount suggested corporate tax incentives for training.

Among the smallest SMEs employing up to 20 employees, 42% say they would like to see an increased personal tax allowance for individuals investing in their own training and skills development.

References

1. The Index includes measures that can be directly linked to SME performance, as well as components that relate to the wider economy. A score of 100 would indicate maximum improvements across the SME Health Check Index’s eight indicators (business costs, capacity, employment, GDP, lending to SMEs, net business creation, revenue and SME business confidence).

2. The SME Health Check Index fell from 48.4 in the third quarter of 2017 to 42.0 in Q4 2017

3. Average UK gross salary was £29,009 in 2017, according to the Annual Survey of Hours and Earnings (ASHE)

4. There are 5.7 million private sector businesses at the start of 2017 – Business Populations (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/663235/bpe_2017_statistical_release.pdf ), 30 November 2017

SOURCE CYBG