• Banks continue to strengthen their balance sheets. Lending is available, but is much tougher to achieve with higher rates, more security needed and more ‘setup’ or ‘consultancy’ fees than ever before.
• Government loan schemes have had a very low take-up, with demanding information requirements.
• Reduced trade credit insurance limits have increased debt requirements just to maintain existing trade.
• Venture Capital firms have focused on recovering lost value in their existing portfolios. Many funds have dried up.

According to a recent survey by the Institute of Directors, nearly 60% of UK businesses were refused credit by their banks last year, despite the government’s efforts to boost lending. The survey found that 57% of businesses were denied money, and 20% used credit cards to finance their business. The report contradicts recent claims by banks that they are lending to companies that need finance.  Recent editorial in The Daily Mail took a blunt view with headlines such as  ‘SMALL FIRMS LEFT TO STARVE’ and ‘IN PROFIT BUT BANK SAID NO’ and ‘WE’VE HAD ZERO HELP’.

On the 19th of February, the Bank of England revealed that bank lending to businesses fell by a record 8.1% last year. It also said that lending to businesses ‘fell across all the main sectors’ for the third successive quarter’.

John Wright, National Chairman of the Federation of Small Businesses said that many firms faced huge problems in raising capital. Economists, business associations and some high-profile business leaders seem to agree that 2010 will be no different, and businesses should not expect a return to 2007: businesses need to get used to the new economic environment.

Behind the headlines, the reality is that all of the banks are desperate to lend more money to increase their profits, BUT their credit departments have raised the bar in terms of criteria and commercially they have increased their prices. So, better-presented business cases are essential. In ‘the good times’ perhaps we all got a little sloppy. Banks (and many others) were keen to lend with often just a brief glance at a proposal or business case. You could apply on-line, you could self-certify – it was very easy to apply for credit. So we all got a little lazy, and now we’re back to reality – and what a shock it has been for many businesses. I have seen several examples of business proposals and business cases for funding, and most of the time they have been weak, ill-prepared, full of gaps, badly presented and without key data. I’m not surprised that many businesses get turned down – they seem to put very little effort into their applications. I’m not a huge fan of Alan Sugar, but I think he did have a valid point when he recently said that some business leaders were ‘living in Disney World’ with their applications for business lending.

So what can you do to maximise your chances of raising finance in the new economy?

Well, the general views of those in the finance business seem to be saying that businesses need to get much smarter about where they look for finance and how they ask for finance. The days of simply relying solely on your local bank have gone – you need to be prepared to look at other banks, other options. And whatever options you look at, they all have one thing in common – they are looking for solid business cases, with good data to support your case and evidence of having the right talent in place to achieve your goals. It seems that many business owners are woefully ill-prepared when asking for financial support – from their bank or from any other source. Simply relying on your trading history just doesn’t cut it any more – lenders need to see a good business case and have confidence that you’ll achieve your goals despite the current economic situation. It’s never been more important for your business to stand out from the crowd – so you need to have your case more prepared than ever before.

Guide to Raising Finance in The New Economy

Vistage is the world’s leading Chief Executive organisation, with over 15,000 members around the world. To reflect this new economic landscape we’re now in, we’ve produced a brand new UK Guide to Raising Finance in The New Economy that tells you what your options are and how best to present your case for business finance. To download your copy, simply visit www.neweconomyblog.co.uk/rf6 and fill in your details.

I wish you the best of luck if you are currently searching for business finance. I hope that this brief article helps a little, but be sure to request your copy of our new Guide to Raising Finance in The New Economy – it has much more detail and tips that might help you.”

Best of luck

Steve Gilroy, Chief Executive, Vistage International (UK & Ireland) – the world’s leading Chief Executive organisation.

Article submitted by the New Economy Blog

The Debt Boutique

Pre-Pack & Transaction Funding Specialist Debt Packagers

Funding Opportunity of the Month – January 2010

• Grants from £100,000 upwards
• Available across England & Wales (except London)
• Available for Turnaround situations

We have tied up with a firm of grant specialists who are able to source grant funding for turnaround situations where:

• there is a realistic turnaround proposal (so no dead ducks)
• the bank or other existing funders remain supportive (which essentially means that the new funds are not simply to be taken in reduction)
• the funding is justified by the sustainability of the business and protection of the jobs of substantial parts of the workforce (but not necessarily all)

Funding can be arranged quickly, in one case within three weeks, and is typically in the range £200,000 to £300,000.

Applicants will require full business plans including three year forecasts (ten year forecasts required for sums in excess of £500,000).

The first step is an initial review of the prospect and assessment of the grant support that may (or may not) be available. At £75 for this initial report is this something that a business seeking funding can afford to miss?

When time and success are of the essence, use the specialists

As experienced turnaround and financing professionals we understand the need for the right deal, on the right terms, delivered in the right timescale.

For more details of how we may be able to help your clients contact Mark Blayney on:

Tel: 01434 345528
Mobile: 07769 686450
Email: help@turnaroundhelp.co.uk

About The Debt Boutique

The Debt Boutique is a specialist service focused on the professional and swift arrangement of packages of structured finance, across the whole of the UK, to support time pressured Pre-Packs and other Transactions.

It combines the skills and experience of two leading practitioners in the area.

Institute for Turnaround member Mark Blayney is a Chartered Accountant with a 20 year background in SME corporate insolvency, turnaround, restructuring and refinancing including experience in intensive care banking and asset finance broking.

He works closely with Stuart Hare, one of the UK’s leading commercial asset finance brokers and founder member/director of the NACFB, with 25 years of experience in working with IPs and bank work out teams on refinancing rescues and exits.

www.debtboutique.co.uk

www.turnaroundhelp.co.uk

http://debtboutique.financial.officelive.com/default.aspx

“When YFM first backed them, these six businesses had a combined market value of £40m, employed 500 people and had a UK only customer base. Now they are worth in excess of  £900 million, employ over 2,500  people and operate all over the world. It has been incredibly rewarding to work with such diverse successful businesses. They have innovated, developed and adapted their products, services and businesses achieving transformational growth.”  says David Hall, Managing Director YFM Private Equity.

DXS, Nanoco, Hargreaves, Byotrol, Art Technology Group and Provexis were all early stage investments backed by YFM Group managed funds between 2003 and 2005. All but Hargreaves are innovative technology companies, demonstrating the high growth and strong performance of their products, services and management team.

Provexis discovers, develops and licenses scientifically-proven technologies for the global functional food, medical food and dietary supplement sectors.

Start-up nano-technology company Nanoco floated on AIM in April 2009 at a market capitalisation in excess of £35m, the share price has since increased significantly since the listing.
 
Manchester based personalised medicine company DXS was sold to international sample and assay technology giant Qiagen. The value of the business had increased 11 fold since the initial investment by YFM managed North West Business Investment Scheme and British Smaller Technology Companies VCT2.
 
Byotrol has seen sales grow thanks to the increasing awareness of swine flu prevention. The manufacturer of anti-bacterial chemicals used in the fight against super bugs has seen sales increase from £200,000 to £1.5m in the last six months.

Mineral resource management company Hargreaves employs over 2,200 staff and with turnover in excess of £400m, they are a perfect example of a company growing both organically and via acquisition. 

Art Technology Group is the premier provider of personalised cross-channel commerce software and services, working with more than 900 of the world’s leading brands.

David Hall says “YFM Group works with hundreds of entrepreneurs each year. We are in a privileged position of seeing the knock-on effect of such success, as the local and national economy benefits from the creation of jobs, inward investment to the region and increases in sales and wealth.”

In the last 12 months YFM Group has made investments into 95 companies across the UK worth £110m.

Contributed by YFM Group - The Small company investment specialist with over 20 years of investment business development.

At an Access To Finance round table organised by the Birmingham Post, a consensus emerged among representatives from the world of banking, small business, venture capital and the public sector that the funding landscape was beginning to look more positive, although businesses still needed to be realistic about their expectations.

The event brought together Ben Bolt, investment director at Catapult Venture Managers, Patrick Palmer, head of access to finance at Advantage West Midlands, Steve Walker, chief executive of community development finance institution ART, Denise Craig, West Midlands policy manager at the Federation of Small Businesses (FSB) and Simon Woodcock, business development director Lloyds TSB Commercial Finance and was chaired by Birmingham Post head of business Alun Thorne.

Ms Craig said access to funding seemed to be slowly easing for the organisation’s members. She explained: “In the last couple of years it’s been really bad. We started to notice problems long before the big “R word” started to be used.

‘‘From a smaller business perspective, there’s a sense that all the risk has been on them. Small businessmen have got to risk their homes as well, even when there is some equity in the business. That’s when they get a bit antsy about it.

“But in the last three months, things have been becoming a little less gloomy. There are signs of cause for optimism.”

Mr Palmer of AWM said banks were simply showing the same level of caution that owners of small businesses were demonstrating in the light of the downturn.

He said: “For the manager running their own business, they are being pretty selective about who they do business with.

‘‘Banks are also being selective and businesses need to think “what information do I need to give to make sure they want to do business with me?”

Simon Woodcock of Lloyds TSB Commercial Finance said the key difference in the current climate was that banks were taking longer to consider all the elements of the deal.

He said: “We are probably looking a little bit more closely at what would happen if everything went wrong and what our exit would be. Deals are probably taking a good 20 to 30 per cent longer.”

He highlighted two contrasting approaches that could decide whether businesses get funding or not.

“Businesses that are successful in getting funding have got systems in place, have got management information and the ability to put forecasts together and the common theme is they have taken good advice,” said Mr Woodcock.

“They have gone to the accountants, to lawyers, to Business Link.

‘‘The ones that aren’t are coming with very little business planning and very little thought on what they are going to use the money for.”

Mr Walker of ART said businesses hoping to access finance needed to break away from the expectation that money will come from just one source. “Individuals have to have a package of finance, be it banks, friends and family, ART – it’s a whole package of finance, not just one,” he added. “We are definitely seeing an appetite among the banks who are saying they want to partner with us to do the deals so they can help the business as they don’t want to take all of the risk.

‘‘Also, people have to be more realistic – interest rates are considerably higher than they were”

He added: “If you have a viable proposition, the money should be there. It might come from different packages of sources, but the money is there.”

Mr Bolt agreed that owner managers have to look to different sources of finance, many of which could be more expensive than they had previously been used to.

He pointed to what he called a “Mexican stand-off” between banks, venture capitals and owner-managers which resulted from differences in expectations from a deal.

“Banks are putting forward their propositions, venture capitals putting forward theirs and owner managers are not taking it,” he said. “There are businesses that are developing unique products and it’s in this area that businesses are having difficulties in raising money from the banks, as opposed to venture capital who clearly have a higher cost.

“The reason for that is that markets are volatile and therefore forecasting becomes difficult.

‘‘Everybody is waiting for the bottom of the market.”

He agreed with Mr Walker that businesses needed to consider looking for a package of funding from different sources.

“In order to get the full amount of finance, you have to get a package and that means banks and more expensive finance such as venture capital. The business has to ask ‘do we want to stand still or do we want to capitalise on growth opportunities?’.

“It is a new world where they need to fund that in a different way.”

Mr Palmer agreed that the way the world of finance has changed so quickly took many by surprise.

“That new world came in extremely quickly. I hope we are getting near to that stage where we are bouncing along the bottom,” he said.

Ms Craig said owners of smaller businesses often found it difficult to get their heads around the changing funding landscape, especially when they were concerned with the day-to-day running of a business and surviving in a recession marketplace.

“It’s the owner managers that have to grapple with all this new systems and they have the same 24 hours in a day as anyone else. It’s changing so quickly,” he admitted. “But, on an optimistic note, they can take decisions more quickly.”

Contributed by Kieran Kelly, Commercial Development Manager - Straight Finance is one of the UK’s fastest growing independent business consultancies dedicated to serving the needs of small and medium sized businesses. It is a multi skilled organisation supplying an extensive range of innovative and bespoke support services to all types of businesses. Delivering business finance is at the core of what Straight Business Solutions does, but this is now just one aspect of what is offered.

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