Lee Hopley is the chief economist at EEF and has said, “While we are seeing a movement in the right direction this is far from a perfect situation for borrowers. Firms are not expanding currently because of economic uncertainty and the fact that borrowing is remaining difficult is not helping matters.

The Independent Commission has recently advised the government to encourage more competition in the small business banking market and investigate the barriers that make it challenging for firms to switch their banks to find better deals.

The Confederation of British Industry has recently announced that manufacturers in the UK are readying themselves for a decline in business. A recent survey by the confederation has said that companies are not planning to expand but only invest in the replacement of current infrastructure rather than spending money on increasing capacity.

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Recently published data by the Bank of England showed banks had met their overall lending targets but failed to meet their SME goals. SME’s often have no other source of funding than banks Cable told the committee and it was a problem with subdued lending possibly inhibiting the recovery of the economy.

It is a serious problem Cable remarked that the SME targets were not being realized. He said they were trying to get the banks to increase their desire to lend to SMEs. They had set a 15% rate of growth and certainly that was not met in the first quarter.

He received questions as to why lending remained weak and some banks argue there is a weakness in loan demand of which that is definitely a factor. He acknowledged that there was a more serious problem that banks will knowledge.

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The availability of resources is stiff and there are many small new companies looking for investors to help them progress with new technological ideas so they are becoming more and more dependent upon groups of business angels and venture capitalists who have had to try and pick up the financial slack from the banks.

Rich SME/Start-ups are being stifled by the “not interested” signs posted by the banks it is quite clear. If early development of IT enterprises continues to be ignored by banks, the companies will have to go looking in America to find the needed funding.

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Funding Circle’s purpose is to finance small business directly at rates more affordable than currently offered by the banking community.

More than thirty businesses have taken on loans from Funding Circle, including a t-shirt printer from London and a water treatment business in Scotland. The average interest rate charged by Funding Circle is right around 8 per cent, which is considerably lower than the current bank rate of 12 per cent.

The average size of a loan is £30K. Lender/investors range in age from 18 to 80.

Borrowers can obtain a loan of £5,000 to £50,000 that are for a duration of one to three years.  The loans are repaid via monthly instalments.  The money is sourced from many different investors who compete in order to provide the borrower the best possible rates.

The lenders set their own interest rates and the borrowers accept the lowest rate.  To date, investors have earned an average of just above 8 per cent on their investments, which is considerably higher than letting the money sit in a regular or savings account.

Borrowers are thoroughly researched by experienced underwriters, just like at a bank.  Only proven credit worthy businesses are allowed to participate in the process.  Borrowers are then divided into risk groups so investor/lenders know exactly what they are taking on in funding any particular business. With the middleman cut out, both investor and borrower do better than they would with any bank.

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In order to provide reasonable and timely compensation for customers, the FSA will also eliminate a two-stage regulation for the processing of complaints and require banks to analyze the root cause of grievances.  The plans were announced as the FSA unveiled its collective data report on banks for the first six months of 2010.

The data showed that complaints against payment protection insurance rose 53 per cent.  In comparison to the prior six-month period, the data showed a decline in complaints resolved within eight weeks and the amount of money paid in compensation by building societies and banks jumped 43 per cent higher.

With the new regulations, the FSA is trying to force banks to make good complaints management the norm instead of the exception.  FSA officials say that complaints handling is a vital factor in their approach to monitor how banks conduct business with their customers.

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Chairman of the British Bankers’ Association, Stephen Pegge, stated that the entire banking industry held the same rate of approval for small businesses.

Cable on the other hand stated that this is not the full truth and the banks are ‘raising the hurdle.’  Instead, he said that the evidence collected by the Institute of Directors is that banks are not lending enough.

The Institute of Directors study found that one in three of its members that applied for loans during the first half of the year were turned down by the bank where they placed their application.

The report also showed that great deals of businesses are being asked to place large collateral to get loans even when the government backs the borrowing.

Director General of the IoD, Miles Templeman, stated that there is a new trend in which banks are demanding high fees, interest rates, and collateral before they will lend to anyone.

Templeman continued to say that many IoD members stated that if a loan is underwritten by the government by at least 75% still need to place personal securities up against the loan for half of the loan value.

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One area in particular which can benefit from such a financial boost to push you ahead of your peers is market presence. This means cash might be needed to spend in a number of areas – including advertising, marketing and improvements to any online facilities you may have in place. If your firm is already enjoying a period of growth, expenses can also come from elsewhere, such as new staff and bigger premises. In most cases these don’t come cheap – but they may be absolutely essential if you want your small business dreams to come true and your projects to continue to flourish.

For some start ups, technology plays a big part in day-to-day affairs and may even be a key element in the products and services you provide to your customers. This can mean it is vital to have access to the best hardware, software, data storage, telecommunications or manufacturing facilities. After all, if you fail to furnish your company with the most up-to-date systems, what’s to stop one of your competitors jumping ahead of you and doing just that?

So what options are available for Lloyds TSB business account customers looking to kick start, boost or expand their brand? Well, one option that could provide a short-term, flexible solution is an overdraft, which can be handy when unexpected overheads arise. For a more long-term investment, a loan could be more appropriate for you needs – and with variable and fixed-rate options available to applicants the terms can be tailored even further.

Once a small business has started to make its mark on the community, thoughts may also turn to making sure a dedicated headquarters is available to your growing staff – at which point it may be prudent to look at a commercial mortgage. That is, of course, if refurbishing and building upon your existing premises is not a realistic possibility.

Those who do decide to opt for a Lloyds TSB business loan will find there are a number of tempting features to the range of packages that could be just what they have been looking for. If the purpose of the cash is to fund a long-term strategy, the fact you could repay over a term of up to 30 years might be of interest, while being able to borrow anything from as little as £1,000 means smaller, quick-fix investments are also a possibility.

Optional loan protection is also available to help out in the event of sickness, accident or death and the bank offers you the opportunity to make your application on the telephone or in your local branch – look at our website for more details.

Any property given as security which may include your home, may be repossessed if you do not keep up repayments on your mortgage or other debts secured on it. All loans are subject to status and we will need your permission to carry out a credit check on you and your business.  You should not apply for an amount that you cannot comfortably afford to repay.

Lloyds TSB Bank plc Registered office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065.
Lloyds TSB Scotland plc Registered office: Henry Duncan House, 120 George Street, Edinburgh EH2 4LH. Registered in Scotland no. 95237.
Authorised and regulated by the Financial Services Authority under numbers 119278 and 191240 respectively.
Licensed under the Consumer Credit Act 1974 under registration numbers 0004685 and 0198797 respectively.
We subscribe to The Lending Code; copies of the Code can be obtained from www.lendingstandardsboard.org.uk

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The rate charge will affect about 5,800 loans that already exist that were drawn up for companies and an additional 3,000 loans that were previously approved by the Business Department.

The news follows revelations that were published in The Daily Telegraph that banks have been able to get about £6m in fees by making SMEs pay inflated rates in order to get access to the scheme which is valued at £1.3b

Research discovered that the companies that chose to drawn down their loan agreements were forced to pay about 1.8p% of the loan in administration fees and also accept an increased rate of interest set at 6.75%.

In response SME groups called for the mater to be investigated with FSB, member Stephen Alambritis commenting that the scheme should be the cheapest option for businesses and that the government needs to investigate the charges.

The new increase in the premium will add an increased cost to obtaining a loan for a businesses, which has been extended up until 2011 with £500m set aside for guarantees.

A spokesman for the Department of Business stated that the discounted premium was only temporary, and could only be offered during the time period when it was still uncertain about how much it would cost for SMEs to get financing.  According to the spokesman the government always planned to return the premium back up from January of 2010.

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A poll conducted by Clifton Asset Management showed that out of the 1,000 SMEs polled; only about 37% of the managers had heard of the EFG. Of the 63% of managers who had heard about the effort, 89% stated that it would not help them to apply for help.

The new figures from the study were announced directly after Alistair Darling the Chancellor stated that the scheme worth £1.3b would be extended to help stimulate lending by banks for loans that are under £1m.  It has been extended past its March 2010 by six months.

The Treasury stated that the scheme was an important funding source for businesses after the bailout of the banking industry.

Director at CAM, Anthony Carty, stated that their figures show that in just a quarter the amount of SME managers who knew about the scheme reduced by a 5% margin.

On the other hand, Business Secretary Lord Mandelson told the House of Lords that so far the EFG has been able to secure 6,855 SMEs with loans that amount to about £692m.

Carty stated that while the figures are encouraging, the study shows that the scheme is still not as effective as the Government claims.

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The report which is referred to as the Rowlands Review and was headed by Chris Rowlands, a member of the Principality Building Society; shows that market failure is common for SME’s who need financing for growth in the up to £10m range.

Officially the report is titled the Provision of Growth Capital to UK SME’s and shows that the gap in funding is not because of the recession, but because funding due to structural lending is usually much easier to get in the bracket below £2m and in the bracket above £10m because of higher venture capital activity.

The report also states that SMEs would have better chances of finding funding in a solution where the finance can be turned into equity later instead of through straight equity or debt finance conventional solutions.

Additionally, the report adds that SME growth works best with mezzanine finance due to the fact that it is middle ground financing that is not high risk and holds the possibility for a high return.

Currently the research from the report estimates that there are anywhere between 25,000 UK businesses and 32,000 businesses that would benefit from the additional funding options that would allow them to proceed with capital growth.

Rowlands stated that the review shows that the provision of capital to SME’s appears to be permanent which is why the UK needs to act to help these businesses out as they try to come back out near the end of the recession.

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