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More than 3 million of UK SMEs are unable to grow without funding

The majority of small and medium-sized enterprises (SMEs) in the UK require funding to overcome cashflow issues and pursue their growth plans, new research from Channel Capital (Channel) has found.

The UK-based, FCA-regulated asset manager commissioned a survey of 506 senior leaders within UK SMEs. It found that 59% of businesses currently need funding to ease day-to-day cashflow issues – that equates to 3.29 million SMEs, while more than two-thirds (68% or 3.80 million) need funding to grow.

There are 5.6 million SMEs in the UK, accounting for 99.9% of the business population as well as three fifths of the employment and around half of turnover in the UK private sector.

Despite the demand for an injection of capital, Channel’s research showed that SMEs are struggling to find suitable lenders. Just 51% said it is ‘easy’ or ‘very easy’ to find an SME loan.

Just over half (54%) of UK SMEs think big banks are too slow in assessing business loan applications, with 47% saying high street banks are reticent to lend to smaller businesses.

Almost two in three (65%) respondents said they are open to using alternate lenders for SME finance options, compared to 31% who said they would only trust a high street bank for a business loan.

Elsewhere, Channel’s study revealed that, of those SMEs which have applied for a business loan in the past, a fifth (20%) thought the process was ‘difficult’ or ‘very difficult’.

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Walter Gontarek, CEO of Channel, said, “From Brexit to the pandemic; the cost-of-living crisis to government fiscal U-turns, the past five years have been hugely challenging for SMEs – and financial planning is extremely difficult in the face of so much political and economic uncertainty, as our research has shown.

“Millions of SMEs need funding to soothe cashflow headaches or, crucially, to pursue growth strategies. Yet unfortunately, accessing that finance is notoriously difficult. Our study highlights the poor experience SMEs often have with big banks’ reluctance to lend, not to mention complex and time-consuming application processes with no guarantee of approval.”

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Ion Fratiloiu, CCO of Channel, added, “Accounting for three-fifths of employment and half the turnover in the UK private sector, we must better support SMEs with easier access to finance.

“The SME loan market needs to undergo the same level of disruption as consumer loans have, with technology-led and online lenders coming to the fore so borrowers can enjoy the benefits of greater choice, speed, and transparency.

“Positively, our research shows SME leaders are open to working with alternate lenders, including digital lenders, so we’re confident that improving access to finance will open up many new opportunities to these businesses.”

Source: London Loves Business

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Graduates accelerate SME growth across the North East

Graduates are our future business leaders.

They play an important role in supporting the health and growth of our regional economy-encouraging them to stay in the region is vital to both.

The University of Sunderland has an excellent track record in delivering programmes of support with graduate employability and retention in the region at their heart.

One such pioneering scheme is the Graduate Internship Scheme. First launched in 2011, the University of Sunderland received European Regional Development Funding (ERDF) to run its Graduate Internship Scheme, connecting graduate talent with regional, Small to Medium Enterprises. It has since provided over 650 graduates the opportunity to work in a variety of small-to-medium private sector organisations across the north-east and delivered nearly £2.4 million in funding to those businesses.

By Autumn 2022, the internship scheme will have placed 250 graduates into full-time roles within growing SMEs, earning an average salary of £20,000.

Graduates typically bring fresh ideas into those organisations, as well as a new perspective, and often help deliver a new product, process or service for the business. After 12 months, employers can decide whether to extend the intern’s contract, and most do, with a high rate of graduates being offered full-time employment on completion of their internship.

Project manager Laura Foster says: “It’s been a well-documented difficult and uncertain time for businesses over the last couple of years, and our project helps SMEs in a really practical way with help towards graduate’s salary costs”.

There are many success stories to have come out of the project and the internships team regularly receives positive feedback from SMEs and graduates who have benefited. One such example is Blaydon-based HLF Group. They recently recruited BA (Hons) Graphic Design Graduate, Brooke Gerrens.

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Director Rachel Conroy said, ‘Brooke’s appointment has had a hugely positive impact on our business. Previously we outsourced a lot of this work (Graphic Design and Media Management) which took time, and they didn’t know our products as well. I believe we can clearly demonstrate we have grown the business through the work Brooke has produced’.

‘The future is very bright. We have three very large tenders going through at the moment with multi -national companies to refurb their stock across the country. We are also seeing steady growth into new trade sectors.’

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Brooke told us of her internship experience so far, ’I have always had a creative eye, in particular editorial design which feeds into designing brochures for customers, therefore the job fits into everything I have wanted to do.

The atmosphere working at HLF is fantastic, design is something I have always had a passion for, so to have the opportunity to be creative in my career is great.’

The scheme delivers European Regional Development Funding (ERDF) and supports SMEs with the cost of employing a graduate, providing up to £3,500 in subsidy payments. After 12 months, employers can decide whether to extend the Intern’s contract.

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92% of SME leaders call on government to do more about inflation

As costs and inflation rise to record levels, small and medium-sized businesses across the UK are urgently calling for Britain’s new Prime Minister, Liz Truss, and her cabinet to provide them with more support.

A poll of 250 British SME leaders reveals an incredible 92% think the Government must do more to support small and medium sized businesses during this period of unprecedented difficulty.

The survey, commissioned by technology provider, Babble, identified the five biggest issues keeping SME leaders awake at night:

  1. Rising inflation costs impacting profit margins (58%)
  2. Retaining customers and clients (46%)
  3. Winning new business (39%)
  4. Impacts of Brexit on importing and exporting (24%)
  5. Providing exceptional customer service (22%)

SME leaders in the North West are particularly concerned with inflation pressures, with three-quarters (75%) of respondents from the region listing it among their biggest worries. Meanwhile, two thirds (65%) of business leaders in the East Midlands are losing sleep over retaining customers and clients, as SMEs struggle to compete. Delivering good customer service when the business is stretched is a particular concern for leaders in the north too, with 31% in the North West and 30% in the North East citing it as one of their biggest worries.

Following the last few years of pandemic-induced chaos, the healthcare industry (73%) is understandably one of the sectors most concerned about the impact of inflation, alongside arts and culture (78%). Investing in new technologies is another key concern for the sector, with a third (33%) of healthcare SME leaders saying so.

The impact of Brexit is still weighing heavily on small businesses too – manufacturing (50%), architecture and engineering (37%), healthcare (33%) and retail (24%) leaders each had it among their top four concerns, with worries around the effect on imports and exports.

Calls for cost-cutting support
When asked what support they’d like to see the Government provide to British SMEs, respondents overwhelmingly voted in favour of measures tackling rising costs. Over two thirds (67%) would like a cap on business energy bills, similar to household energy bills, whilst almost half (44%) want to see work done to reduce rapidly rising insurance premiums, especially on mandatory personal indemnity insurance policies. Other methods of support SME business leaders would like to see include:

• Corporation tax remaining at 19% regardless of business size (35%)
• Reintroduction of the furlough scheme through the initial recession period (27%)
• Reintroduction of the Brexit Support Fund for SMEs who are exporting to Europe (22%)
• Faster rollout of Building Digital scheme so all businesses have fast broadband (20%)

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Tech investment key to navigating trouble
With support so far unforthcoming, British SMEs are having to consider which areas they should invest in to successfully navigate this period. Over half (57%) plan to invest in new technologies to stay ahead of competition, though a quarter (23%) said they would have to scale back on spending plans. When asked, business decision makers are most likely to invest in:

• Software to improve customer experience (48%)
• Cloud technology to improve hybrid and remote working (38%)
• Increased protection from cyber attacks (31%)
• Initiatives to keep staff morale high (29%)
• Software to manage HR and recruitment processes (20%)

Commenting on the findings, Babble’s CEO, Matt Parker, says “SMEs are the backbone of the UK’s economy. But instead of being able to dream big, they are being kept awake at night worrying about how they’re going to navigate the next twelve months and it is clear they are going to need more support to do this. Whether it’s reducing costs long-term, ensuring greater customer service, stronger defences against cyber-attacks or promoting greater collaboration between teams, cloud technology provides the answer.

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“At Babble, we’re passionate about working with SME leaders to find the solutions to these issues and seeing small businesses thrive. As the country enters a new era of leadership, we’re determined to see SMEs up and down the country get the support they need and make the right investments to allow them to dream big for the future of their business.”

Babble is committed to powering business up and down the country, aiming to provide a local service to its customers, with the all the benefits of a national provider. The company supports over 10,000 organisations across a range of sectors and has over 250 staff located nationwide.

This makes Babble a natural partner for Ride Across Britain, an annual 980-mile bike ride from Land’s End to John O’Groats. As lead sponsor, Babble is demonstrating its support for clients across the UK, reflected in the cross-country route, as well as fundraising over £500,000 for charities, The Prince’s Trust and The Buffalo Foundation.

By Serena Haththotuwa

Source: Business Leader

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SME survey reveals financing drought which is stalling growth as RLS loan deadline passes

More than one in five (22%) small and medium sized enterprises (“SMEs”) that needed external finance and/or capital over the last couple of years were unable to access it.

Indeed, over a quarter (27%) have had to stop or pause an area of their business because of a lack of finance. This is according to new research commissioned by Manx Financial Group PLC (AIM:MFX), the financial services group which includes, amongst other operating subsidiaries, Conister Bank Limited (“Conister”), Conister Finance & Leasing Limited and Blue Star Business Solutions Limited.

The research showed that the biggest barriers faced by SMEs in sourcing external finance/and or capital were that it was too expensive (23%), the process took too long (19%) and that there was a lack of flexibility with repayment terms (17%). SMEs also cited other barriers such as the fact that the lender didn’t understand their business (16%) and that they received poor customer care (10%).

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The research also revealed that SMEs have been forced to pause or stop activities such as expanding into new markets, hiring the right personnel and marketing, because of lack of financing. Manufacturing, Finance & Accounting, Retail and IT & Telecoms were the sectors that were affected the most because of a lack of external finance and/ or capital.

Over the next 12 months, nearly two in five (38%) SMEs believe Sales will be the biggest areas of business that will see growth followed by recruitment (19%), new product development (18%) and new market expansion (17%).

The research also highlighted that a third (34%) of SMEs are concerned that their business will not grow in the next 12 months. However, with appropriate external finance, SMEs on average believe their business could grow by around 17%.

Douglas Grant, CEO of Manx Financial Group PLC said, “The research sadly reveals what we have been observing for some time – that SMEs continue to struggle with accessing finance and that worryingly, this lack of availability will cost them and the UK economy in terms of growth at a time when it is needed the most. The amount of growth that is being sacrificed is however significant and will require new solutions which are designed to address this funding gap.”

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On 6 April 2021 the Recovery Loan Scheme (“RLS”) was launched. A new Government-backed initiative designed to help facilitate businesses’ recovery and growth after the disruption caused by Covid-19, allowing firms of any size and sector to apply for funding of up to £10 million from accredited lenders.

Conister was approved in August 2021 as a British Business Bank accredited lender for the RLS. It enabled Conister to extend the support it has provided to SMEs throughout the Covid-19 pandemic. The scheme deadline is today (30 June) meaning capital-starved SMEs, still recovering and adapting to a post-pandemic landscape, will need to source alternative forms of lending.

Some sectors of the economy are recovering more rapidly than others. For those still struggling sectors, they require an additional government intervention, but for the remainder, no further Government intervention is necessary.

Grant added, “We were delighted to have been accredited for the RLS last year. The programme provided the necessary catalyst that many sectors required to thrive.

“However, this lifeline is now going and demand for working capital is set to soar to new highs as more businesses desperately require liquidity provisions to counteract record inflation levels, rising interest rates, supply chain issues, increases in wages and additional pandemic-induced headwinds. With the cost of borrowing set to increase, many SMEs are facing their own cost of living crisis.

“A sector focused government-backed loan scheme which brings together both traditional and alternative lenders to guarantee the future of our SMEs in struggling sectors, is critical to ensure that opportunities for their growth are not missed. We very much hope this is something that becomes a reality.

“In the meantime, all SMEs would be well-advised to take stock of their current capital structures and, if appropriate, access fixed term, fixed rate loans to prevent additional exposure to an increasingly volatile lending market.”

By Lib Finance Reporter

Source: London Loves Business

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Over 69,000 loans approved on day one of the Bounce Back Loan Scheme

More than 69,000 Bounce Back Loans worth over £2bn have been approved during the first 24 hours of the scheme.

The seven largest lenders (Barclays, Danske, HSBC, Lloyds, RBS, Santander and Virgin Money) received more than 130,000 applications on the first day of the scheme, which launched on Monday.

Chancellor Rishi Sunak said: “Small businesses will be the driving force of our recovery from the pandemic, creating jobs and securing economic growth.

“These loans will help them bounce back from this crisis – getting money fast – so it’s great to see close to 70,000 businesses benefitting in just the first day.

“It’s vital this speedy progress continues in the days and weeks ahead.”

Small businesses can get a loan of up to £50,000 interest free for the first 12 months, while the amount borrowed is capped at 25% of turnover.

Stephen Jones, chief executive of UK Finance, said: “Bounce Back Loans form a key part of support measures put in place by the government, working with the banking and finance industry to help businesses through these difficult times.

“This scheme gives smaller businesses including sole traders rapid access to debt finance if they need it. Bank staff have been working flat out since the scheme launched on Monday morning to process applications and get money out to eligible borrowers and these figures are testament to their hard work and the commitment of the industry to support businesses of all sizes.

“While businesses only need to fill in a simple form online to apply, it’s important to remember that this type of finance is debt, not a government or bank grant, and will need to be repaid by the borrower over the six year term of the loan.

“All businesses should consider carefully their repayment obligations before completing a Bounce Back Loan application. Under the terms of the scheme lenders are required to seek to recover any unpaid interest and principal on Bounce Back Loans from borrowers.”

BY RYAN BEMBRIDGE

Source: Property Wire

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What the Budget means for SMEs – all the reaction

Chancellor Rishi Sunak has announced the government’s coronavirus response which includes the promise of emergency aid worth £1bn backed by a “co-ordinated, coherent and comprehensive three point plan” with business at its heart.

He says the response is “temporary, timely and targeted” and has been drawn up with the help of the Bank of England which cut its rates by 0.5 points this morning.

Key measures announced include: For SMEs with fewer than 250 employees, the cost of providing Statutory Sick Pay to any employee off work with coronavirus will – for the first 14 days – be refunded by the government. This will be worth more than £2bn for up to two million businesses, the Chancellor says.

MEASURES INCLUDE BUSINESS LOANS, SUPPORT ON SICK PAY AND THE ABOLITION OF BUSINESS RATES

Businesses are to get a new ‘interruption loan’ scheme guaranteed by the government Banks will offer loans of up to £1.2m to support SMEs. The government will guarantee up to 80 per cent of losses with no fees. This, he says, will be worth up to £1bn in “attractive working capital loans”.

He will also abolish business rates altogether for this year for retailers, in a tax cut worth more than £1bn. Any company eligible for small business rates relief will be allowed a £3,000 cash grant – a £2bn injection for 700,000 small businesses.

The Bank of England slashed the base interest rate from 0.75% to 0.25% this morning to shore up the economy hours after Health Minister Nadine Dorries was diagnosed with COVID-19.

Sunak told ministers at a meeting this morning coronavirus was “front and centre” and the Budget would “make the UK one of the best placed economies in the world to manage the potential impact”.

HMRC’s Time To Pay service will also be scaled up.

He said that Entrepreneurs’ Relief will be retained, but the lifetime allowance will be reduced from £10 million to £1 million, one announcement that brought immediate criticism.

Jamie Morrison, head of private client at accountancy firm HW Fisher said: “This change is as good as abolishing it completely and this is a huge mistake. While a sensible change following proper consultation would be welcomed, this is a step too far.

SHOULD THE CORONAVIRUS OUTBREAK WORSEN, JUST HOW MUCH ASSISTANCE CAN THE GOVERNMENT REALISTICALLY PROVIDE TO HELP BUSINESSES AND THEIR EMPLOYEES?”

“By cutting the relief entrepreneurs will only be able to benefit up to £100k during their lifetime.

“This is not enough to drive support of creativity and entrepreneurship. Businesses need consistency and this budget needs to look beyond the immediate implications of coronavirus to provide a vision beyond the next 12 months.”

John Ellmore, Director of Know Your Money said moves to support the self-employed offers some assurance to those that make up the ‘gig economy’ and support to help businesses implement self-isolation measures was welcoming.

He added: “That said, we are still left wondering as to what the long-term solution will be. Should the Coronavirus outbreak worsen, just how much assistance can the Government realistically provide to help businesses and their employees?”

“Let’s not forget the financial challenges that self-isolation can also pose to workers. It is estimated there are 2,000,000 people in the UK with no sick pay who may not be able to afford two-weeks of self-isolation.”

Andrew Mawson, founder of Advanced Workplace Associates makes the point that having the odd ‘work from home’ day is one thing, but managing large numbers of people working at home for a prolonged period of time is quite another.

“There is a lot we take for granted when we’re in the office. When we’re working away, we need to consciously develop new leadership and workership practices,” he said.

“Businesses should adapt and grow or they will diminish. Whether the required change is driven by global economics, workplace cultural changes, or imminent global pandemics such as coronavirus, businesses are having to change their ways of working. Sometimes in an instant.

BUSINESSES SHOULD ADAPT AND GROW OR THEY WILL DIMINISH. WHETHER THE REQUIRED CHANGE IS DRIVEN BY GLOBAL ECONOMICS, WORKPLACE CULTURAL CHANGES, OR IMMINENT GLOBAL PANDEMICS

“There are all sorts of reasons why people can’t get to the office. The trick is to recognise that home or remote working isn’t necessarily a bad thing.”

Mike Hampson, CEO, of Bishopsgate Financial said: “Have to hand it to Sunak, from business rates to investment in infrastructure to contingency funds for employees and SMEs amid Coronavirus Crisis delivering his first budget its sensible stuff by the chancellor.

“Increasing investment in R&D to a record £22bn a year, which is the fastest, and the largest increase in R&D ever higher than the US, China, France and Japan. In addition, significant investments in transport and technology infrastructure should provide an economic boost. Good news about Coronavirus loan scheme. Great support for #SME. However, will it be easy to access for SMEs to access these promised funds? As an SME getting loans could be painful, long and challenging.

“It’ll be interesting to see where the money is coming from when the details are published. This budget together with the earlier BoE interest rate cuts should combine to create a positive mood for the country in a time of uncertainty.”

Peter Webb, MD of Electronic Temperature Instruments, the UK’s largest digital thermometer manufacturer, said he welcomes the SSP announcement.

“These are unprecedented times and businesses of all sizes needed reassurance and a dose of confidence in order to stabilise their business and support their workforces,” he said. “What this does is it confirms the governments’ commitment to getting behind British business throughout this crisis and helps stabilise employment and supports productivity.”

Source: SME Web

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UK small businesses gloomy about coronavirus and Brexit

Worries over the impact of Brexit and coronavirus mean more than 70 per cent of the UK’s small and medium-sized businesses do not expect the country’s economy to grow during the rest of 2020, according to new survey data.

The pessimism about growth means firms 57 per cent of firms are unlikely to invest in growing their business in the next quarter, according to the small business confidence index, which was launched today by business banking platform Tide.

The UK economy has picked up in 2020 after the December General Election and the “phase one” US-China trade deal both provided some certainty to firms.

However, Britain faces the difficult task of striking a comprehensive free-trade agreement with the European Union by the end of the year, and is currently reckoning with the spread of coronavirus.

Both of these factors have led to pessimism among the UK’s smaller businesses, according to the Tide survey, which was carried out by Yougov at the end of February.

Coronavirus, which has now infected more than 270 people in the UK, is currently a major concern for businesses. More than half are concerned their business income will fall over the next quarter, while 57 per cent are unlikely to be above to invest in growing their business in the coming months.

The survey data came just days before chancellor Rishi Sunak is set to unveil his Budget on Wednesday.

The government had hoped it would focus on its agenda to “level up” spending – particularly on infrastructure – around the country, but it is now likely to focus on measures to deal with coronavirus.

Tide chief executive Oliver Prill said the government must “invest in our entrepreneurs and SMEs [small and medium-sized entrepreneurs]” and said he “hopes to see this reflected in the Budget announcement”.

By Harry Robertson

Source: City AM

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Post-Brexit investment in UK SMEs is vital to ‘level-up’ the regions and increase productivity

Community Development Finance Institutions are committed to investing in the regions of the UK and are key to the Government’s strategy to increase productivity and level-up communities post-Brexit, says Responsible Finance.

The EU’s European Regional Development Fund has been critical to the effective regeneration of regions across the UK. Its coherence and longevity have been key to its success. EU funding and instruments have been instrumental for CDFIs in enabling them to grow their SME lending and increase their offering of advice and support services to entrepreneurs.

Community Development Finance Institutions (CDFIs) are non-profit social enterprises which provide affordable finance to customers not supported by other lenders. They serve three markets: start-ups, small and medium sized enterprises; social enterprises and charities; and financially excluded individuals. They are currently the only entities solely focused on investing in disadvantaged communities through loans to enterprises unable to access finance from mainstream sources. They foster inclusive economic growth; they create good jobs, build businesses and revitalise communities. In 2019, CDFIs lent £171 million to 4,600 businesses and social enterprises. 94% of loans were made outside London and the South East, and businesses lent to reported an average increase in turnover of £320,000.

With over twenty years of experience and success lending in deprived communities, including delivering good value for money on government programmes such as the Regional Growth Fund, CDFIs offer the Government an ‘oven-ready’ tried-and-tested vehicle for revitalising the UKs most deprived communities. By partnering with and investing into CDFIs, the Government will catalyse a complementary reaction by the private sector; CDFIs are experienced in leveraging in capital from UK banks to match Government funding programmes and utilising the Community Investment Tax Relief.

The UK has a landscape of deep-rooted inequality built up over many decades, and is now one of the most regionally unbalanced countries in the industrialised world. Because of the regional and local differences in prosperity, we are not harnessing the economic potential that lies in the regions. If no action is taken the gap is expected to grow with 50% of future job growth going to London and the South-East.

Despite relatively low unemployment figures since the aftermath of the recession in Britain’s older industrial towns, when economic trends are looked at closely this drop in unemployment can largely be attributed to the rise in out-commuting jobs in other places and a local population with an excess of retirements over young entrants to the workforce. It is questionable as to whether employment growth in this way is sustainable or beneficial, particularly given the negative environmental implications of increasing dependence on the UK’s road and rail networks.

Rewarding employment opportunities should be available in towns and cities up and down the UK, as a city-centric model of growth does not necessarily work for every region. One way of creating more and better jobs is to increase investment in SMEs.

Small and medium sized businesses account for 99.9% of all private sector businesses and 60% of all private sector employment; they are the engines of the UK economy. The Government has a leading role to play in addressing regional disparities for businesses by ensuring more small businesses can access appropriate, affordable finance when they need it.

Regional imbalances in business finance hampers the ability of businesses to grow, recruit and innovate. In the UK, access to finance at the local level varies considerably, and the British Business Bank’s ‘Benefits of Diverse Smaller Business Finance Markets’ report showed that for seemingly identical companies, where they are based significantly impacts the type of finance and finance providers they can access. For debt financing, bank lending volumes broadly match the regional distribution of the small business population, however local level data shows considerable variation in lending.

Businesses often struggle to access finance from mainstream banks if they are deemed high-risk due to a lack of trading history or insufficient assets for security. The latest SME Finance Monitor found that the success rate for bank loans in the UK has continued to decline and is now at just 63%. Among those declined, a third were not able to expand as they had planned, and a similar proportion found running their business more difficult.

Banks are generally cautious when it comes to small business lending. SME loan applicants may be more likely to be unsuccessful in seeking mainstream finance if: it is a new business venture; they are first time borrowers; they have unique and unproven business plans; their application is presented poorly; or if they have a difficult credit history. The estimated debt funding gap is £1.4 billion. Whilst this number is not high by international standards, it still means missed economic and social benefits for the UK.

CDFIs adopt a flexible approach to determining the viability of a business, and can often provide support when mainstream lenders can’t. 93% of the viable businesses CDFIs lent to in 2019 had been previously turned down by a mainstream bank.

Business investment is also a key driver of productivity, and the decline of investment as proportion of domestic output in the past three decades has had an impact on the UK’s low productivity. The SME finance monitor shows that permanent non-borrowers are less likely to export than those that use external finance, and are less likely to grow, innovate, and make a profit. This contributes to the productivity challenge as businesses are unable to invest in the new equipment and technology which drives up their performance. This ultimately has an impact on the strength and resilience of local economies and the economic opportunities for their residents. Improving productivity is vital for increasing economic growth and raising living standards.

CDFIs are committed to investing in the regions of the UK and are key to the Government’s strategy to increase productivity and level-up communities post-Brexit.

Source: Politics Home

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Merchant Cash Advance 101 – Everything UK SMEs Need To Know About Business Cash Advance #1 – Alternative Sources of funding for SMEs

Running a business, of any size and nature, eventually boils down to how well you can handle the numbers. There are, of course, the important calculations about growth and reinvestment, but, as far as the day to day operations are concerned, it’s all about managing the cashflow.

Larger businesses have it slightly easier in this regard. Bigger pockets usually ensure better credit, thereby also implying that such businesses rarely have to borrow in order to look after everyday expenses.

The same, however, cannot be said about an SME. SMEs have a whole different set of questions to answer, and the answer usually lies in how easily, how conveniently, how fast and how affordably they can borrow money. This is where alternative sources of finance come to the fore as many of them have the ability to mould themselves to the exact needs of your business.

Merchant cash advance is among the most popular alternative funding sources for UK SMEs, and we will try to take stock of its features in this article.

What Is Merchant Cash Advance?

Merchant cash advance, also known as business cash advance in many circles, is a fast, unsecured business loan that helps SMEs tackle the cashflow problems. Merchant cash advance is a cash injection that is tied to your future debit and credit card sales. In that sense, merchant cash advance or business cash advance is a good source of alternative funding for B2C SMEs.

Merchant Cash Advance Definition

Merchant cash advance is an unsecured business loan that is repaid through the future debit and credit card sales you make.

Unlike other business loans and overdrafts, there are no fixed monthly repayments to make. There is no APR to worry about either. The equation is fairly simple – the more sales you make, the faster your loan gets repaid. This also means that if you’re experiencing a particularly slow month, your repayments will be proportionately smaller.

Each merchant cash advance account is tied directly to your card terminal (point of sale). So, it’s important that a healthy share of your sales comes through debit/credit card transactions.

Merchant Cash Advance – How It Works

Merchant cash advance is inherently different from other unsecured business loans in that it is based directly on the profitability of your business. Lenders, while assessing the potential of your business, will take a close look at the performance of your business – especially the card terminal transactions. Due to this peculiarity, it becomes important to understand how merchant cash advance really works.

The Process – Take A Moment To Familiarise Yourself With How MCA Works

Merchant cash advance lets you borrow money as and when you need it – but it’s technically not really a loan (we will get down to that part shortly). For now, we suggest you take a moment to understand the process and how it will impact your cashflow.

  1. Any SME that makes card terminal sales can apply for a merchant cash advance. Commercial Finance Network makes this process incredibly easier and faster.
  2. The lenders take a look at the recent history of card based transactions and decide your affordability. This is similar to other forms of credit and loans.
  3. Once the lender determines your affordability, you’re presented with a cash advance offer.
  4. After you accept the quote, the money is transferred directly to your bank account. This process is smooth and involves minimal paperwork. Working with an experienced whole of market broker like Commercial Finance Networks means that you will have the added advantage of speed. You can expect to see the funds in your account in 1-2 business days.
  5. You will start paying the money back to the lender as soon as the repayment period kicks in. The repayments are usually based on your daily business (5-25% of your daily card sales, depending on the offer you’ve agreed to).
  6. There is no conventional interest rate or APR. You’ll essentially be selling a fixed percentage of your future sales to the lender until the advance is fully repaid along with the fees and charges. An upfront interest amount is calculated using the “factor rate”.

Merchant Cash Advance Factor Rate – What It Is & How It Is Calculated

Every MCA quote you will receive will specify a certain “factor rate”. This number essentially replaces the traditional interest rate and tells you everything you need to know about the cost of borrowing.

The factor rate is expressed as a single number that typically ranges between 1.1 and 1.5 (depending on the health of your business and your affordability). For example, if you’re borrowing £10,000 from a lender and the factor rate is 1.1, you will be required to repay £11,000 in total. It’s really as simple as that.

There are a few things to consider here.

The factor rate differs from the APR/interest rate on two counts. Firstly, it is a fixed number that tells you exactly how much you will need to pay. Secondly, it has nothing to do with the balance of the advance that’s unpaid. It doesn’t matter how quickly you pay the MCA off, you will still pay the amount determined by the factor rate.

Merchant Cash Advance Is Not Really A Loan

In the traditional sense of the word, a loan is the amount you borrow and pay back as a function of the interest rate and time. Therefore, it should be easy to see why it’s not a good idea to treat a merchant cash advance as a loan.

As we mentioned earlier, when you borrow money using an MCA, you essentially agree to sell a part of your future revenue to the lender. The lender assumes much less risk here, even though it’s an unsecured mode of credit. We would go so far as to argue that a business cash advance/merchant cash advance is an unsecured counterpart of revenue based alternative sources of funding for SMEs (for example, invoice finance).

How Much Can You Borrow?

Larger businesses usually don’t feel the need to borrow via MCA since they have at their disposal stronger lines of credit from banks and other lenders. SMEs, on the other hand, can borrow enough to tie up the loose ends, get the cashflow in order and access money to fund purchase orders/new business opportunities.

At Commercial Finance Network, we help UK SMEs borrow anywhere between £2,000 and £200,000 as a cash advance from our panel of responsible and specialist lenders.

Please note that the amount you can borrow will depend upon the following factors:

  • The nature of your business and the industry/sector you operate in
  • The average daily turnover (card terminal transactions)
  • The overall profitability of your business

There’s no need to feel overwhelmed by these factors – these are essentially the same factors that lenders will look at while assessing any other loan application.

Please read on to learn more about how we, at Commercial Finance Network, make it easy for you to apply for and get a merchant cash advance from UK-wide lenders.

Merchant Cash Advance – A Short Case Study

Being a leading whole of market commercial finance broker, we get to work with businesses of all sizes. This gives us a unique vantage point regarding the requirements of UK SMEs. The following MCA case study will help our customers and readers understand the practical importance of merchant cash advance as a financing tool.

We recently worked with a London based mobile food startup. Their business model was interesting and had already received a good deal of positive PR in local circles. However, at less than 18 months of age, the business had no history of credit to fall back on, meaning that they couldn’t borrow the money required to grow their business from banks and high street lenders. To receive more funding from investors they already had on board, they had to hit a monthly sales target – a target they couldn’t possibly reach without investing in a new point of sale (a financing catch 22 situation). This meant that they needed at least £20,000 to buy a new van and hire 2 more employees.

After understanding their unique situation, we forwarded their application to a specialist MCA lender who agreed to assess their business.

The following terms were drawn:

  • Cash advance: £20,000
  • Factor rate: 1.20
  • Total amount to be repaid: £24,000
  • Average card sales forecast (per month): £9,000
  • Average card sales forecast (per day): £300
  • Percentage of daily card sales to be paid back: 33% (£100)
  • MCA repaid in around: 240 days (8 months)

As the borrowing business received the money in just about a couple of days, they were able to invest it back readily. This opened up an additional revenue stream for them, and as they reached the targets laid down by the investors, they were also able to access a new line of credit.

Merchant Cash Advance – Who Is It Suited For?

Merchant cash advance is suited for SMEs that:

  • Require money urgently
  • Register significant card sales on a daily basis
  • Operate in cash rich industries and sectors

Are You Eligible For A Merchant Loan (Merchant Cash Advance)?

You’re eligible for a merchant loan if:

  • You’re a UK based business that accepts card payments,
  • You have a merchant account,
  • You generate at least £2,000 in card sales each month (over a minimum of three months),
  • You are a registered business (sole trader, partnership or limited company)

Advantages Of Business Cash Advance (MCA)

Now that we’ve seen how MCA works, let’s now see what advantages it has to offer to the borrower.

1. It’s Fast

The most important advantage is the speed. When you work with an experienced broker and specialist lenders, you can expect the entire process to complete within a matter of hours. This not only saves you a great deal of hassle, it also lets you put the money towards the requirements as soon as possible.

2. It’s Flexible

Since there is no interest rate to worry about, you know how much you’re going to have to pay back. This makes merchant cash advance incredibly flexible. On a good day, you will pay more and on a slower day, you’ll pay that much less. In other words, you will never be put in a position where you have to stretch your finances thin just to make the repayment.

3. No Need To Draw From Your Cash Transactions

You will only pay back a part of your card sales. You will still have full control over all the cash sales you make during this period.

4. No Collateral/Security Required

MCA is an unsecured form of credit. You will not be required to raise a deposit or collateral to get approved.

5. Poor/No Credit Shouldn’t Be A Problem

Most lenders tend to approve merchant cash advance applications from SMEs that have poor/no history of credit as long as the business performance is promising.

6. MCA Works With All Major Card Terminals

All major card terminals and machines are compatible with the auto debit facility for card sales.

7. MCA Can Be Topped Up

Some lenders provide the option of topping up your existing MCA account based on your history of repayment and business performance. This allows you to borrow more as and when required.

Relative Shortcomings Of Business Cash Advance (MCA)

  • Merchant cash advance is not at all suitable for businesses that do not accept card payments.
  • Young businesses that have little to no history of card sales find it difficult to get approved.
  • While MCA helps you gain access to funds faster, it also means that your daily cash flow will be impacted as long as the advance isn’t fully paid back.

How To Apply For A Merchant Cash Advance?

Merchant cash advance is a specialty form of financing. As is the case with all such finance products, it’s always a good idea to work with specialist lenders. Generic high street lenders don’t have the expertise or experience required to make such deals work, and the borrower has to face the brunt in the form of an unreasonably expensive offer.

At Commercial Finance Network, we help you get fast, flexible and low factor rate MCA offers from some of the most experienced and trusted specialist lenders across the UK.

Applying is easy – just fill in this form to message us or call us on 03303 112 646 to speak to a merchant cash advance specialist.

A Merchant Loan Can Be Used The Way You Want To

Unlike a mortgage or asset finance, merchant cash advance can be used to fund any and every business requirement as you see fit. Common examples include:

  • Opening up a new location
  • Managing the daily cashflow
  • Staff salaries
  • Funding new purchase orders
  • Refurbishments
  • Advertising and marketing
  • Purchasing new equipment
  • Investing
  • Paying off other loans

Make Merchant Cash Advance Work For Your Business

Given the number of positives it brings on board, merchant cash advance is undoubtedly one of the most versatile financing tools an SME can rely on.. To know more about how an MCA can help you grow your business and take care of emergency requirements, call us on 03303 112 646. You can also apply for a merchant cash advance directly by filling in this online form.

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FinTech in the UK is driving better access to lending and leasing

Access to capital can mean the difference between business longevity and business insolvency. Many UK businesses, particularly SMEs, either lack the access to capital or they find it takes a long time to secure funding from traditional offerings.

In the context of the digital economy, lending and leasing customers, such as manufacturers, retailers and logistic firms, expect to be able to request quotes seamlessly and in a timely manner. Customers don’t have the luxury of waiting for weeks which could cause issues within their supply chain and impact on the ability to fulfil current and future customer demands, or the payment of suppliers for services rendered.

According to a report by PWC (2017) the global asset finance market in 2015 was worth more than 3.9 trillion pounds. With the rise of disruptive non-banking entities providing competitive financing solutions, lending and leasing is becoming a high growth and highly competitive sector for traditional service providers to continue to play within.

There is a golden opportunity for traditional banking and finance institutions to tap into the lending and leasing market, however, a key challenge is that their systems are not fit for the digital age. This means that businesses go for the path of least resistance and choose a challenger offering, which are able to provide a quote in a matter of hours rather than days, weeks or months.

The prevalence of inflexible systems, manual processes, and siloed data management at traditional banks can lead to a high level of operational inefficiencies. There is a clear need to provision for an overhaul and consolidation of core IT infrastructure.

The key to providing an enhanced lending and leasing customer experience is to work with third party tech providers. By forming partnerships, banks are able to tap into digital technologies that can transform their processes to enhance customer experience. The provision of a multi-channel self-service, provides real-time business insights leading to greater productivity and flexible workflows.

A flexible IT architecture through the opening up of APIs is the key to achieving a competitive advantage, such as loan processing and collection, screening, credit scoring and underwriting all as one end-to-end process.

At the same time, financial technology is transforming the way entrepreneurs and SMEs apply for loans in the UK, driving greater equality to access financial products and to support their growth. These businesses are currently being under-served by traditional financial providers which may become irrelevant if they do not catch up with demand.

Small and growth businesses previously were at the mercy of local financial providers can now access a range of services including peer-to-peer lending, accounting software, financial management, insurance, and business valuation services – all as one complete offering.

Source: FinExtra