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Three ways to improve your chances of getting an SME loan

Lenders have a set perceptive on what a healthy business is, and they only ever lend to those that are healthy. Businesses that can’t show a capability to repay are rejected, and businesses that do not submit an accurate application are too. If you are thinking about applying for an SME loan for your business, there are three main ways to improve your chances of being approved.

  1. Submit an accurate application

It sounds so, so obvious, yet you’d be surprised by how many applications lenders receive that do not contain accurate information (around two in five). The information you supply in your application will be used to determine its legitimacy. You’ll include the names, dates of birth and home addresses for all business owners and your company registration number. If these details are inaccurate, the loan application will be refused, and you will have to start over again.

It makes sense to take your time with your application. Write down all answers to information requests and double-check their accuracy. By ensuring you submit an accurate application, you allow a lender to decide whether or not to approve your application based on your business’s health and what you plan to do with the money.

  1. Maintain and show business profitability

Lenders want to see capability of repayment with SME loans. The best way to show this is by maintaining profitability in your business. Profitability is important because it shows your business model works. It also gives the lender a rough estimate of the cash in your business. These details are very helpful and particularly so with lenders who review applications in person. Lenders who use automated systems will reject a business out of hand if it’s loss-making.

Can’t show business profitability? Another sign of a healthy business is activity. If your business has an active balance sheet and can accommodate the cost of loan repayments, a lender may approve the application if they are satisfied with capability of repayment. Also, if you can’t show profitability, you can offer the lender security in the form of an asset to get a loan. This is called a secured loan.

  1. Approach independent lenders – not banks

High-street banks do not typically offer the most competitive business loans. And, in many instances, they don’t have specialised products for SMEs.

A quick comparison between a leading high-street bank (HSBC) and a leading independent lender (Nationwide Corporate Finance) for an SME loan reveals a difference in representative APR of 3.8% in favour of the independent lender. That’s an enormous difference that equates to hundreds of pounds over a single year.

Another important point is high-street banks put applications through a computerised system. If they pass that test, they get a human review. Independent lenders do not usually have computerised systems and review applications in person right off the bat. This makes for a fairer, more personal application process and a higher chance of approval.

Source: SME Web

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Why small businesses need to unlock funding for growth

According to Bloomberg, 80% of businesses fail within the first five years and of the 20% still standing, 80% of those statistically will fail in a further five years. We often see start-ups winning rounds of funding, but growth seems to slow down once they reach the development capital stage, as business owners struggle to raise capital to fund business growth in today’s tough market.

Access to funds for small businesses and start-ups is a true catalyst for growth and success. Supporting growth of SMEs is essential for the economy of the country in the pursuit of innovation and progress. Particularly in the run-up to and post Brexit, according to government figures, SMEs combined turnover constitutes almost half (47%) of private sector turnover in the UK, reaching an annual total of £1.8 trillion – making funding crucial.

Many entrepreneurs and small businesses are completely unaware of the sources of cash as well as other less conventional funding methods available to them. For small businesses to be successful, it is important that they apply for right type of funding at the right time, as speed of funding has been identified as integral to achieving this growth. Despite this, many small business owners are yet to take advantage of the funding available to them.

Unlike larger companies that have a whole department dedicated to finance, most small businesses won’t have such resource, meaning owners will need to add fundraising to their list of skills. This often leaves many small business owners unsure of which funding they are eligible for or where they should even apply for the funds they want.

There are a huge number of options available to small businesses in the UK, from Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS), very advanced crowdfunding and angel networks, low rates of corporate tax, R&D tax credits and entrepreneur’s relief in the UK. While having so many options is great, this adds yet another layer of confusion in terms of understanding which is best for your individual business needs and objectives.

This is why I have briefly outlined the advantages of different types of free cash sources and equity available to UK small business to help understand the best option to help fund growth:

  • The UK is one of the best places in the world for equity funding. Tax incentives such as SEIS and EIS are the government’s tax incentives to UK income tax payers to try to level the playing field between the relatively high risks of investing in the shares of unlisted small companies.
  • Often forgotten are R&D tax credits. The government are keen on paying out on R&D tax credits if there is substantial proof of research, development and innovation.
  • Crowdfunding, which also offers an excellent route to raising the capital. As the crowd will help sense-check ideas before you spend money, the marketing of shares will raise your company’s profile and it helps achieve a higher valuation with a crowd of shareholders than with a single financial investor.
  • Angel networks, which are a more sophisticated version of the crowdfunding platforms – angels start at about £25k upwards.
  • There is a comprehensive list of what funds are currently available, many new ones open and many closed. My latest book, “Reboot Your Business” details the 140 different funds available for UK-based SMEs.

Many small businesses struggle to find the funding they need to grow. It is important that they are equipped with the knowledge and tools to succeed. As the level of competition in the market increases and as Brexit looms, funding options have never been as important as they are now.

Source: SME Web

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A Quarter of Small Businesses Would Cut Staff if They Couldn’t Access New Finance

According to new research commissioned by ground-breaking financial utility, Saxo Payments Banking Circle, SMEs are facing potentially fatal challenges in accessing finance to support the growth of their business.

“Since the financial crisis began in 2008, mainstream banks have been less willing to lend, particularly to smaller enterprises and this has forced SMEs into an unfair fight for the finance they need to compete effectively,” explained Anders la Cour, co-founder and Chief Executive Officer of Saxo Payments Banking Circle. “Our research found that lack of access to additional finance would force 25% of SMEs to let employees go. Nearly a third (30%) would have to reduce prices to encourage sales and increase cashflow, and 39% would be unable to buy the equipment the business needs.”

Over 500 financial decision makers and directors in SMEs that have an online presence responded to the research commissioned by Saxo Payments Banking Circle. Almost all (92.5%) have accessed business finance within the past five years, but many have experienced difficulties in borrowing from their usual bank.

Interest rates and fees were the biggest concern, with 58% saying they would consider finance from a non-bank if it offered lower interest rates. 44% would do so for lower arrangement fees. 25% would be attracted to a non-bank by simple online account management.

The reason for SMEs going into battle for finance varies, but buying equipment was the most common reason why they needed extra cash – for 52.9% of SMEs. Purchasing inventory came in second place (34.5%), followed by expanding into new markets for 27.5%.

The most common type of finance used was a one to three year loan, taken out specifically for the purpose. The second most common type of finance was an overdraft. And, whilst likely to be more expensive than other finance facilities, 60% of SMEs with 10-49 employees said they had relied on their overdraft within the past five years. Without that essential facility they would have had to take drastic steps to cut costs.

Ability to access finance quickly is essential for small businesses working in a fast-paced market and trying to compete effectively. However, the Banking Circle research painted a worrying picture of the length of time firms wait to get their hands on the cash their business needs. Just 3% managed to get the finance arranged within a week. 33.3% took 1-2 weeks and 36.3% waited 3-4 weeks for the finance to be arrange. 2.1% of SMEs waited up to six months for their finance – a small percentage, but representing almost 120,000 businesses across the UK.

“SMEs play a vital role in the global economy, and anything holding them back from their potential could have a severe and far-reaching impact”, continued Anders la Cour. “The business landscape is changing, and traditional lenders are not able to keep up and meet the needs of SMEs. Only financial institutions willing to adapt to new market conditions, working with third-party providers in an ecosystem model, will remain competitive and successful in the digital age.”

Source: Bobs Guide

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Just 11% of business lending is now fixed-rate loans

Just 11% of the £416bn in total stock of loans to businesses are now being provided on a fixed rate – dropping by a third from 18% two years ago.

This leaves businesses with huge exposure to rising interest rates, Hadrian’s Wall Capital, the London-based specialist debt adviser, argued.

The drop came as banks prepared for interest rate rises and de-risked their loan books. Hadrian’s Wall Capital thought this has left businesses dealing with significant uncertainty over their cost of finance and unable to plan corporate finance activity and investment over the coming years.

Marc Bajer, chief executive of Hadrian’s Wall Capital, said: “Now is the time for small businesses to lock in to fixed-rate debt, before interest rates rise again.

“However, fixed-rate loans are now virtually unavailable from banks, and many SMEs are reliant on floating rate debt. Any jump in interest rates could see small businesses burned by their reliance on floating rate loans.

“Corporate finance advisers should also consider fixed-rate debt when it comes to their corporate finance activities, so as to reduce the threat to them and to their clients, of rising interest rates.

“When interest rates rise, small businesses are likely to suffer financial damage – a rise in the base rate to just 1.5% would cost UK small business billions.”

The firm said that fixed-rate loans are now increasingly difficult for businesses to obtain – especially for small and medium enterprises.

The expected further rise in interest rates of 0.25% in the coming months will cost British SMEs another £355m in interest payments in the first year alone.

Data provided by the Bank of England showed that in 2012, the share of all bank loans to businesses had a fixed-rate as high as 49%.

Hadrian’s Wall Capital said the consequences of both the Credit Crisis and the swaps mis-selling scandal has meant that SMEs are now extremely wary of using swap products.

Additionally, SMEs also have great difficulty in obtaining approval from any institution to fix the interest rate on their loans using swaps, removing another layer of protection from rate rises for businesses.

With interest rates now on the rise, there is a risk that SME growth planning and corporate finance activity could be shelved for the present, as businesses choose to wait for less uncertainty over the costs of floating rate debt.

Hadrian’s Wall Capital said it is important to continuously revitalise UK business by giving them un-interrupted access to debt refinancing, MBO’s and MBI’s.

Fixed-rate lending for such corporate finance activities can help to reduce the risk of rising interest rates to these SMEs.

The growing shortage of fixed-rate bank lending to SMEs has led Hadrian’s Wall Secured Investments to focus on providing long term, fixed-rate, non-callable loans to SMEs, giving them intermediate to long-term certainty over their cost of funding.

This enables them to undertake corporate finance transactions and plan long-term programmes of investment in their businesses.

Source: Mortgage Introducer

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£6 million in start-up loans for 1,000 Black Country businesses in the last six years

Almost £6 million in Government-backed start-up loans has been pumped into the Black Country over the past six years, helping around a thousand people get their own businesses off the ground.

Another £603,380 was lent to 88 business owners in South Staffordshire by the Start Up Loans Company (SULCo)

Since launching in 2012, the Government-backed scheme has provided a total of £1.6 million in low-interest funding to more than 300 loan recipients across Wolverhampton, helping kick-start local start-up businesses. In total, more than £375million has been provided by The Start Up Loans Company to over 50,000 loan recipients across the country.

The programme has helped 2,115 in the West Midlands who were formerly unemployed or economically inactive, as well as helping an additional 21,151 people across the UK into employment nationwide.

Across the Black Country, £1,275,725 has been lent to 190 business owners in Dudley, £1,668,300 lent to 256 start-ups and new businesses in Sandwell and in Walsall £1,390,354 has been lent to 249 budding entrepreneurs.

Chris Smith, aged 34, is one loan recipient in Wolverhampton who received a proportion of the funding to launch his own business in 2014. Evo Fit, based in Willenhall, is a start-up gym that offers cardio and resistance training, with classes ranging from core blast to HIIT and boxercise.

A former personal trainer in a health and fitness club, Chris felt inspired to take his teaching to the next level by starting a gym of his own.

He approached The Start Up Loans Company for a loan to kick-start his venture, and successfully secured £22,000 of low-interest funding. The loan went towards paying rental premises, as well as purchasing equipment used in the studio.

The business employs five members of staff and services more than 600 customers across the Wolverhampton area.

In 2015, Chris worked with with renowned fitness expert Joe Wicks and his future plans include launching new fitness and cycling programmes at Evo Fit. The business also has its sights on opening another gym in Birmingham city centre in the next year.

Chris Smith, CEO and founder of Evo Fit, said: “As a personal trainer, the best thing about my job is helping people reach their goals and transform their lifestyle in a positive way. But while I’ve always enjoyed that aspect, I realised that I could use my experience to create my own business and do it myself.

“Although I was confident I had a concept that would work, I lacked the right financial support to start-up on my own. The Start Up Loans Company provided me with a loan to help me put my plans into place, meaning I was fortunate enough to avoid any financial stumbling blocks in the early stages. Since launching Evo Fit, I’ve been able to help more people pursue their fitness goalsand continue doing what I love, which is fantastic.”

Joanna Hill, interim CEO at The Start Up Loans Company, said: “It’s fantastic to see how Chris has used his experience to help others become fitter and healthier through launching Evo Fit. Since securing financial backing, the business has gone from strength to strength, and by collaborating with fitness experts, Chris has been able to extend his offering even further.

“Reaching £1.6million of funding for new business ventures in Wolverhampton is a great milestone for us, and highlights the entrepreneurial appetite for new business growth in the area. We’re looking forward to seeing what’s in store for budding business owners as we enter into 2018.”

Backed by the Department for Business, Energy and Industrial Strategy (BEIS, the Start Up Loans Company (SULCo) was formed in June 2012 as an arm of the British Business Bank. SULCo provides personal loans for business purposes of up to £25,000 at a six per cent fixed interest rate per annum, and offers free dedicated mentoring and support to each business.

Nearly half of loan recipients nationwide have been NEETs – not in employment, education or training – but figures show the overall return on investment for the scheme is at least £3 for every £1 invested. Those receiving a loan report estimated average turnover for their new busineses of £44,000 in the first year.

Source: Express and Star

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SME bosses optimistic about funding options in 2018

Nearly half of UK SME bosses think their business’ revenues will increase in 2018, thanks to better funding options.

The latest Aldermore Future Attitudes report reveals that three quarters (75 per cent) of SMEs, representing 4.13million* small and medium sized businesses across the UK, are confident that they will be able to access the funding options they need to grow their business over the next twelve months, compared to only 63 per cent in Q4 2016.

The report, which surveyed more than a thousand-business decision-makers across the UK, found that business owners are also more confident that their revenues will rise over the coming year. The methods of securing this growth vary with half (50 per cent) planning to increase marketing efforts, just under two fifths (39 per cent) launching new products or services, and a third (33 per cent) entering new markets.

In total, more than two in five (42 per cent) SME owners think they will see an increase in their revenues, compared to 39 per cent in Q4 2016, with over one in ten (11 per cent) of bosses expecting to see a significant increase in profits over the next twelve months.

Carl D’Ammassa, group managing director, business finance at Aldermore, says, ‘It is encouraging to see that optimism amongst SME leaders is increasing, with attitudes towards business revenues staying positive for the next 12 months. SMEs make an essential contribution to the UK economy and with Brexit discussions progressing, their ability to obtain finance and help support the growth of the UK economy will be crucial.

‘Planning can be a difficult task, but to ensure ongoing success, every business owner needs to have a vision for growth and an understanding of how they would like to get there.’

Source: Small Business

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Small businesses enter 2018 full of hope

Three quarters of medium and small businesses are confident they will be able to access the funding they need to grow their business over the next 12 months, according to the Aldermore Future Attitudes report.

This result for the fourth quarter of 2017 was an increase from the same period in the previous year when only 63 per cent felt this way.

The report, which surveyed over a thousand-business decision-makers across the UK, found that business owners are also more confident that their revenues will rise over the coming year.

The methods of securing this growth vary with half planning to increase marketing efforts, just under two fifths – 39 per cent – launching new products or services, and a third entering new markets.

Carl D’Ammassa, group managing director for business finance at Aldermore, said: “It is encouraging to see that optimism amongst SME leaders is increasing, with attitudes towards business revenues staying positive for the next 12 months.

“SMEs make an essential contribution to the UK economy and with Brexit discussions progressing, their ability to obtain finance and help support the growth of the UK economy will be crucial.

“Planning can be a difficult task, but to ensure ongoing success, every business owner needs to have a vision for growth and an understanding of how they would like to get there.”

In total, more than two in five SME owners think they will see an increase in their revenues, compared to 39 per cent in Q4 2016, with over one in ten – 11 per cent – of bosses expecting to see a significant increase in profits over the next 12 months.

Source: FT Adviser