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10 Common Finance Hurdles UK SMEs Face (And How To Overcome Them)

If you run an SME, you probably are familiar with these all too well. But it’s easier to overcome these finance hurdles than you think!

First of all, let us begin by admitting and acknowledging the harsh reality. The UK economy has been through a constant grind of speculation, debate and uncertainty over the past few years, all thanks to Brexit. Without commenting on the issue, we would just like to mention that not all SMEs are happy about the way things have been unfolding. Nearly 40% of UK SMEs think that Brexit – if and when it actually happens – will leave them worse off in terms of financing and sales. That’s a very serious trend.

However, that’s only a part of the finance riddle. There are quite a few non-seasonal hurdles that SMEs have to face while applying for and getting commercial finance. Here are our picks (and some advice from our experts on how you can easily overcome them).

1. The Personal Credit Vs Commercial Finance Conundrum

This is by far the most common confusion we’ve seen SMEs struggle with. Much of this has to do with the fact that most SMEs are built ground-up without any solid plan for expansion. This, however understandable, is not the right approach. When you start a business, it’s advisable to treat it like a business. Sure, you can use your personal credit cards or even mortgage your home – but you need to know where to draw the line.

Personal loans tend to reduce your creditworthiness, making things difficult for when you want to get a business loan. The best way to overcome this conundrum is to separate personal and business finances as strictly as you can. Your personal creditworthiness should be a credit to your business – not a burden.

2. Bad Credit

This is the most obvious hurdle. If you have bad credit, you’re going to struggle to get a good deal (or any deal, for that matter). It’s important to know what impacts your credit in addition to the usual do’s and don’ts.

We’d like to note here that having bad credit doesn’t spell the end of the road by any stretch of imagination. We, at Commercial Finance Network, regularly broker bad credit loans for many otherwise successful SMEs. You can read more about our adverse credit mortgage services here.

3. No Credit History

Not many SMEs take business credit seriously, thanks mainly to the fact that most operate as sole traders. Quite naturally, it’s not very common for SMEs in the UK to have business credit history.

The easiest way to establish business credit history (you’ll need it when you want to apply for high-end commercial finance products) is to register your business and start trading regularly. Most companies, just by trading actively, are able to establish various credit tracks that help towards their credit history. To speed up the process, you can also use easy-to-access finance products like credit lines, business credit cards, overdrafts and so forth. Short-term finance products like bridging loans and invoice finance can also be very helpful in building a good credit score.

4. Multiple Applications

As is the case with personal credit, your chances of getting approved for a commercial finance product may get severely hampered by multiple applications. If you overestimate your creditworthiness and have half a dozen applications turned down, it’s almost always going to leave a dent in your business credit history.

This, however, is easily avoidable. If you want to directly work with lenders, make sure you are familiar with the lender’s expertise, expectations and track record. If not, you can send your applications through a reputed whole of market broker like Commercial Finance Network to improve your chances of getting an affordable and customised finance deal.

5. Going After Incompatible/Unsuitable Products

Another easy to avoid problem.

If you’re in need of commercial finance, make sure you know what exactly it is that you need. Specialty finance products are always more affordable than blanket packages. For example, many SMEs apply for a generic business loan to cover all sorts of expenses, instead of going for specialty, focussed loans. This not only makes things more expensive; it also increases the chance of having their application rejected.

An easy fix is to know what commercial finance products are available out there, and how you can best customise them to your needs.

6. Not Making The Right Points

This shouldn’t be a point of discussion, but we’ve seen too many SMEs fail to paint themselves in good light.

If you want to work with specialty lenders (like the ones we have on our panel), you will need to make sure that you know your business inside out. And by business we don’t just mean your day to day operations. You need to be able to demonstrate how you are planning to fuel the growth and overcome the competition. A detailed business plan that touches on all these point (and more) will always be helpful in getting lenders on board.

7. Weak Cashflow

This doesn’t and shouldn’t apply to every SME out there. However, you need to ensure that the cashflow numbers are always as healthy as possible.

Lenders, by and large, look for affirmative signs that tell them that you’ll settle the dues. And there’s no better sign of surety than strong cashflow numbers month after month.

8. Short On Security

Many commercial finance products require you to attach a security. It could range from personal guarantees and shares to properties and even vehicles.

Some specialty products (a good example is that of invoice financing) may not work at all without an inherent security. So, before you apply, know how these products work and what sort of security might be needed to get your application through.

9. No Trading History

Many SMEs try to apply for commercial finance right after they start trading. This is a rather hasty approach, because at that point, no SME can show any sign of credibility – no credit history, no volume of transactions and no track record.

To avoid this, we advise our customers to establish a long-enough trading history (typically six months or longer).

10. Tie All The Loose Ends

If your business has availed any loans in the past – however small the amounts – make sure you pay them off at your earliest, before you apply for commercial finance. If you aren’t in a position to make these payments right away, make sure these loans are represented correctly on your credit file, so that lenders can understand why you needed them and how you’re going to pay those back.

Commercial finance can appear daunting – but trust us, it’s anything but. With specialist lenders who know what your business needs, we’ve got you covered. To request more information or to request a call back, please call us on 03303 112 646. You can also get in touch with us here.

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Why don’t banks care about SMEs?

For a service sector dealing almost solely with numbers and structured data, the world of small business lending could not be better suited to disruption by digital machines.

But recently, Bank of England governor Mark Carney rightly pointed out that, despite small and medium sized enterprises (SMEs) facing a £22bn funding gap, almost half don’t plan to use external finance, citing the hassle or time associated with applying.

The governor announced that the Bank would therefore champion a data platform to help SMEs have an easier time when applying for credit. The vision builds on Open Banking, bringing together data from a wide range of sources including Companies House, HMRC, utility companies, and telecommunications firms.

With a single “data passport”, SMEs could easily apply for finance at dozens of providers with the click of a button.

So how has it come to the humiliating point that the industry’s own regulator is proposing innovations that could accelerate growth and improve customer service? What are the banks’ armies of IT and product development staff doing?

The governor’s comments underscore a failure by banks to embrace the digital economy and invest to keep pace with the changes happening to their customers.

SME owners don’t just expect their bank’s lending process to be as seamless as their personal loan applications – they also expect banks to recognise how the financial makeup of firms has changed thanks to the digital revolution. Most SME financing from banks is centred around equipment or property assets, but digital services firms have neither.

Innovative finance providers, including my own company, have already embraced the data sources that the Bank of England will promote to open up access to finance.

Powered by new data connectors like DueDil, TrueLayer, and Codat, we automate the analysis of public data, bank transactions, and accounting records to make it faster and easier to provide credit to small businesses. Since launching, we have facilitated over £100m of lending to growing SMEs, and are rapidly expanding our operations to help more businesses across the country.

So why haven’t traditional banks made similar investments in order to price loans in the digital age? In my view, the reason is simple: it is not profitable for them to do so.

Under Basel III – the global rules governing how banks are regulated – banks are directed to hold almost double the amount of capital against an SME loan compared to a buy-to-let mortgage, for example. Holding more capital means making less profit, so all else being equal, banks naturally double down on loans that require lower amounts, such as mortgages.

And so we have seen banks close branches, sack business lending sales teams, and fail to innovate, while instead channeling more lending into the unproductive housing market, rather than the productive SME economy.

While challengers and fintechs are happy to lead the innovation in business lending, without structural reform of banking capital rules, we are unlikely to see strong competition from banks.

This is a challenge that Carney’s successor must tackle if the UK is to unleash the full potential of its SMEs.

By Greg Carter

Source: City AM

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Government provides £200m for small firms as Brexit threatens EU funding

The UK government has handed over £200m to help support smaller businesses in the 2019-20 financial year as the future of European Union funding remains uncertain.

The Treasury announced today that it has made the cash available to the British Business Bank, which provides loans to small companies looking to increase in size through investment and venture capital firms.

Chancellor Philip Hammond suggested in the 2018 Budget that £200m could be made available “to replace access to the European Investment Fund [EIF] if needed”.

The EIF is an EU agency that has been a significant source of funding for small UK businesses that struggle to get credit, but Brexit means British firms look likely to lose access to this money over the long term. The Federation of Small Businesses (FSB) today voiced concerns over the loss of EU funding.

The Treasury said the money will be available from today and will cover this financial year. Further funding arrangements have yet to be made and will depend on Britain’s future relationship with the EU.

Venture capital and investment firms will be able to approach the British Business Bank, a public-private partnership, to bid for the extra £200m to invest in small UK firms.

Business minister Kelly Tolhurst said: “This funding, supported by the government-backed British Business Bank, will play a key role in supporting innovative firms access the finance they need to grow and thrive.”

British Business Bank chief executive Keith Morgan said: “We welcome HM Treasury’s confirmation today that this allocation of £200 million is now available to increase provision of much-needed scale-up capital for innovative businesses across the UK.”

The national chairman of the FSB, Mike Cherry, said: “The British Business Bank provides vital support for thousands of smaller firms – particularly in parts of the country where funding is hard to come by – so it’s good to see it receive another £200 million following the launch of the £2.5 billion patient capital programme last year.”

“However, with Brexit on the horizon, serious questions regarding future funding for a UK small business support network that’s heavily reliant on the EU remain unanswered.”

He said: “A promised consultation on the post-Brexit Shared Prosperity Fund that would replace EU funding streams is yet to materialise. The £200 million is welcome, but we need to start thinking much bigger about future investment in the small firms that make-up 99 per cent of the UK business community.”

By Harry Robertson

Source: City AM

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UK small businesses plan ahead despite Brexit paralysis

More than two in three (68%) small business owners have put plans in place to grow their business over the next three months, and even 59% those that fear they will struggle to survive in an uncertain year are working on positive plans to turn their business around, according to new research from Hitachi Capital Business Finance.

The findings come at a time when the proportion of UK small businesses predicting growth has hit a five-year low (down from 39% to 34%). Nonetheless, despite prolonged Brexit uncertainty, the new Hitachi data reveals a tenacity and determination among the UK small business community to keep calm and carry on, even through an unprecedented period of political and economic change for the country at large.

The Hitachi data also suggests it is Britain’s youngest small businesses that are the most can-do in putting growth plans in place for the first three months of 2019. Overall, 87% of business owners aged under 35 have been working on new growth plans (compared to 55% of those aged 55 or over). Further, the UK’s youngest businesses (those trading for less than five years) were most assertive in working on new growth initiatives (71%). With London and Manchester growing as the UK’s top tech hubs (and cities for tech jobs), the Hitachi research also noted that London (78%) and the North West (71%) were the regions where small businesses were most likely to be tackling Brexit uncertainty with proactive growth plans.

What are small businesses prioritising to achieve growth?

As part of the latest instalment of Hitachi Capital Business Barometer, which tracks small business outlook and confidence over time, Hitachi asked a nationally representative sample of 1,177 small business decision makers which initiatives they were considering in order to achieve growth in the three months to April 2019. The results paint a picture of what the small business community will be prioritising during the critical Brexit transition period in the weeks ahead.

Keep costs down and carry on

The number one issue for small businesses was controlling fixed costs. During a period of rising rents, business rate hikes and a weak pound, 41% of respondents said cost control was a top priority to help their business grow in uncertain times.  As the perceived importance of cost control hits a five-year high, a further 18% of respondents said they intended to tackle late payment. Despite recent moves by the Government to tackle this issue, there is no evidence that anything as dampened this issue for small business owners. Concern over tackling late payment is at its highest level since the start of 2017.

Cashflow remains king

Improving cash flow has also hit a five-year high as a priority for small businesses to tackle (22%). The perceived need to tackle this issue was most prevalent in the manufacturing (40%), distribution (38%) real estate (38%) and retail (33%) sectors. It was also a bigger issue among larger SMEs with a turnover of £10m or more – ventures that have more complex infrastructures and bigger cost bases to manage.

Expanding the business footprint

Expanding into new overseas markets (16%), hiring more people (15%) and investing in new equipment (12%) were all popular initiatives to secure growth, although in all these areas there was a slight dip on 2018, suggesting some small businesses could be putting on hold physical expansion plans until there is greater certainty on the Brexit outcome.

Looking an industry sectors, small businesses in agriculture were most likely to be planning to invest in new equipment (31%). Expansion into new overseas markets was led by the IT and telecoms sector (49%) and enterprises in the media and marketing sector (34%). Small businesses in the IT and telecoms sector were also those most likely to be hiring new staff in the months ahead (35%).

Initiatives that small business owners are considering to achieve growth in the three months to April 2019

Q1 2017 Q3 2017 Q1 2018 Q3 2018 Q1 2019
Keeping fixed costs down 37% 32% 36% 37% 41%
Improving cash flow 20% 19% 19% 20% 22%
Being stricter with getting paid on time (e.g. from clients) 17% 17% 14% 16% 18%
Expanding into new markets/ overseas 20% 15% 18% 15% 16%
Hiring more people 17% 13% 15% 16% 15%
Investing in new equipment 14% 11% 13% 14% 12%
Reassessing finance commitments 8% 8% 8% 10% 8%
Streamlining supply chain 6% 6% 6% 6% 6%
Seeking financial funding via a partner/ company other than our bank 6% 5% 5% 5% 5%
Moving to a different location/ bigger office 5% 6% 5% 6% 5%
Securing financing to replace a vital business asset(s) 2% 1% 2% 2% 2%

Gavin Wraith-Carter, managing director at Hitachi Capital Business Finance said, “We are all living with political and economic uncertainty at the moment, and getting used to living with it will become the new norm for most businesses in 2019. It is heartening to see so many small businesses going towards uncertainty and seeing it as a time to improve their business, get it in better shape and achieve growth. For smaller businesses that can adapt faster and move quicker, 2019 could be a year of great opportunity.

“That said, finance is going to be key, possibly more so than ever. At a time of uncertainty, cutting fixed costs and strengthening cash flow will be a fundamental requirement for many small businesses in order to simply operate. Beyond that, getting the right kind of finance deals and support is crucial.

“More than ever before, small businesses need access to specialist financial solutions that can nurture growth and expansion without placing undue pressure on cashflow. At Hitachi Capital Business Finance we have a range of financial products that do just that.

“Our heritage is in manufacturing not banking and as a leading finance provider we are in the business of helping small businesses growth through all the stages of an economic cycle. It makes business sense to help business customers stay in business and grow – and we will be expanding our support for the small business sector during 2019.”

Source: London Loves Business

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‘No deal’ Brexit prompts expectation of increase in demand for business loans

As predictions have emerged of an upsurge in borrowing demand from SMEs if a ‘no deal’ Brexit occurs, owners of small businesses are being urged to fully acquaint themselves with the terms of a personal guarantee backed loan, before signing on the dotted line.

Todd Davison, director of Purbeck Personal Guarantee Insurance said, “It is widely anticipated that there will be an increase in demand for loans as SMEs look to introduce additional working capital buffers in a bid to ride out any impact on business following a “no-deal” Brexit.

“Additional funding to aid cash flow may help to offset downturns in trade or disruption within the supply chain. But the reality is that most commercial funding will need a Personal Guarantee and this commitment should not be taken lightly.

“As the UK’s only provider of Personal Guarantee Insurance to SMEs, we would urge the Directors of SMEs to fully consider their options and the risks, particularly in the current uncertain economic climate.   It’s vital Directors seek independent advice, and ensure they have investigated what alternative funding may be available.  If a Personal Guarantee backed business loan is the right solution, they should ensure they’re comfortable with all the terms of the guarantee.”

Top facts to check before signing a personal guarantee for a business loan:

  • How will the lender enforce the guarantee?
  • Can the lender serve notice or seek payment on demand?
  • What exactly constitutes a default?
  • Do the terms allow for any remedy period upon default?
  • How will your net personal assets be assessed prior to the giving of the guarantee, and is this is likely to change?
  • Does the contract state that the lender must exhaust every other avenue before making demands on you?
  • Have you considered the cost of obtaining personal guarantee insurance?

Todd Davison concludes: “Personal Guarantees are likely to be requested by every business lender. Directors of small businesses should be clear on the terms of the guarantee, and should have contractual clarity on all eventualities. They should be as genuinely objective as they can about the financial prospects of their business and its commercial value too. It’s essential to remember that a Personal Guarantee is not a hypothetical assurance, creditors can and will enforce them.

“Because they significantly increase risk for the borrower, Personal Guarantees can cause enormous stress. It’s therefore advisable to get Personal Guarantee insurance against the risk that the Guarantee is called by a lender. It will offset any outstanding obligations called in under a Personal Guarantee. The level of cover is based on a fixed percentage of the Personal Guarantee the company director wishes to insure and this is dependent on whether the corresponding finance facility is secured or unsecured.”

Source: London Loves Business

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Why UK Businesses Need to Trade Internationally – The Key Benefits of International Trade for UK SMEs

The Key Benefits of International Trade for UK SMEs – As a business, you’re always trying to find and break new grounds to gain that competitive edge. But, have you considered going global yet?

The history of the world as we know it has been shaped by a complex concoction of ideas, events and people.

But there has always been a strong, undeniable driving force behind much of the development we’ve seen in the post-industrial revolution era: natural resources. The quest for the very best of everything that our planet has to offer has built, transformed and even destroyed civilisations, and international trade is a vibrant reminder of that fact.

Today, no country can afford to sit back and not engage in international trade. Many of Western economic policies stem directly from trade-related reasons and thousands if not tens of thousands of companies in the UK keep the wheel of our international trade turning.

But while all this happens, what does international trade mean for you and your business?

In the more-connected-than-ever world, you can’t possibly afford to ignore the possibilities that exist around the world. If you’ve been apprehensive about the seemingly complex international trade puzzle, let us break some things down for you.

Before that, let’s take stock of where things stand from an SME point of view.

More and More SMEs Are Trading Internationally

Thanks to consistent efforts of successive governments, international trade has seen some promising numbers in the last few years.

Although there has been a marked drop in overall exports in the past two years due to puzzling developments and speculations around Brexit, the overall number of SMEs exporting internationally has increased. The latest figures released by the government indicate that the number of SMEs exporting products and services internationally rose in 2017 by 6.6%.

“With more and more SMEs engaging in international trade (especially exports), it’s clear that it’s indeed possible even for a small business without millions of pounds in cash reserves to expand their operations, customer base and influence around the world with success.”

At 235,000 and counting, the SMEs trading internationally account nearly for 10% of all SMEs in the UK.

Benefits of International Trade for UK SMEs

While there can be cited dozens of benefits of international trade, here are the important ones that UK SMEs need to know:

A. International Trade Allows for the Diversification of Operations

It’s probably the most apparent benefit of going global for SMEs.

As a business trading internationally, you can easily diversify many of your business operations. This includes the two end-points of business – paying customers and suppliers whom you pay. You can access diverse technologies, market opportunities, natural resources and human resources, and make them all work in your favour.

B. Diverse Operations = Better Risk Tolerance

Risk tolerance is a business metric that defines how much of a leeway a business can have against various risks – from market events to uncontrollables like natural calamities.

When you start trading globally, your business automatically spreads much of its risks over a wider geographic area. Of course, this comes with additional trading risks, but they usually offset themselves with associated rewards. Essentially, businesses that import/export can tolerate negative events without sustaining much damage, as opposed to domestic businesses that can suffer irreversible damage.

For example, an unfortunate event like an earthquake can bring your manufacturing operations and domestic demand to a standstill. But if you export the manufactured goods internationally, you can still move the surplus inventory off your warehouses, maintaining the incomings relatively unscathed.

C. Trading Internationally Opens Up New Channels of Revenue

It’s no secret that you can’t have every type of demand in a single market. If you trade only domestically, your operations will always be limited to a certain type of demand. Any fluctuations in those demand forces will have a direct impact on the revenue.

Alternatively, when you trade globally, you can add multiple, previously-untapped revenue channels to your operations. This is just an extension of the previous risk tolerance argument we made, but it’s definitely one of the highlights UK SMEs need to think about.

D. International Trade Isn’t Crippled By Finance Bottlenecks Anymore

The second half of the 20th century was marked by epochal turns. The World War II started a chain of events that was propagated further by the Cold War, followed by the oil-centric upheavals in the Middle East. All these events meant one thing – the money gradually dried up from all international trade that wasn’t related to oil.

Lenders were unwilling to deal with foreign suppliers or banks, making letters of credit an irrelevant option for businesses. Today, we are glad to report, this isn’t the case.

Even a small business with limited capital can easily have letters of credit issued to the supplier’s bank without any problems. Thanks to the good perception UK businesses have in foreign markets, there are fewer things to worry about today than ever. If you’re exporting goods or services, you can just as easily arrange for flexible finance packages that keep the operations running smoothly.

When it comes to trade finance, Commercial Finance Network is an automatic choice for hundreds of UK SMEs. Being an industry-leading whole of market broker, we help UK SMEs access a diverse panel of lenders who bring on board decades of global trade experience. High acceptance rates, customised loan terms and fast approvals are just some of the features that make our trade finance services popular among businesses across the UK.

E. You Can Easily Beat Domestic Competition

Trading internationally means trading on a bigger and wider canvas. By going global, you can make sure that your business has an edge over domestic competitors.

F. A New Lease of Life for the Service Industry

Service provider businesses are among the fastest growing businesses of the 21st century, thanks largely to the internet effect. Given that the UK is one of the most important financial markets of the world, it’s no wonder that UK service providers – especially in the technology, financial and education sectors – have been reaping the rewards of trading internationally.

If you run a service business, you can – at relatively lower cost spreads – access and seize foreign markets.

G. Trading Internationally Promotes Innovation

Innovations isn’t just a buzz word – it’s the primary catalyst for business growth today.

If your business operates in tech, manufacturing or financial sectors, you know this first-hand. Innovation in a far-away market can often have an tearaway effect on your local performance. In such times, it pays to be connected to the world at large – something trading internationally lets you do.

Explore the World of Opportunities With Commercial Finance Network

Whether it’s sourcing better, cheaper equipment from overseas suppliers or exporting goods/services to foreign customers, every well-thought-out international trade move can be a game changer for your business.

At Commercial Finance Network, we help UK SMEs realise their global trading goals with robust, flexible and customised trade finance solutions – from affordable import-export finance to universal letters of credit. Let us worry about mediating with foreign banks and suppliers while you focus on your business.

To request a quote or talk to our trade finance experts, click here.

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Small business confidence falls to lowest level since financial crash

Small business confidence has fallen to -9.9, the lowest level since the wake of the financial crash in 2011, according to the latest Federation of Small Businesses (FSB) Small Business Index.

The data revealed that 67% of small firms do not expect their performance to improve this quarter.

The index revealed that 58% of businesses say the domestic economy is a significant barrier to growth, up from 55% at this time last year.

Access to appropriately skilled staff (36%), lack of consumer demand (29%) and labour costs (21%) are also frequently flagged as primary barriers to growth.

Small businesses in the accommodation and food services (-48%), retail (-44%) and manufacturing (-16%) sectors report some of the lowest index readings.

FSB national chairman, Mike Cherry, said: “How have politicians allowed it to come to this? Two and half years on from the Brexit vote and small businesses are looking ahead to Brexit day with no idea of what environment they’ll be faced with in less than ten weeks’ time.

“The current uncertainty is making it impossible for firms to plan, hire and invest. That’s feeding into wider concern about the economy at large. We won’t see GDP growth pick-up again until there’s some certainty about how the business environment will change in the coming months.

“Come the beginning of April, small firms will not only have Brexit day to worry about but also Making Tax Digital, a higher living wage, rising auto-enrolment contributions and further business rates hikes. This will be a flashpoint for a lot of businesses, threatening the futures of many.”

The index also shows borrowing costs for small businesses soaring. The proportion of successful credit applicants being offered a borrowing rate of 5% or more has hit a record-high (74%).

The proportion of small firms applying for external finance remains low at 13%.

Cherry added: “With Brexit taking up all of the government’s bandwidth there are a huge number of domestic business issues that are not being addressed. They include the long-standing barriers small firms face when trying to access new finance, and the sky-high borrowing rates they’re often offered if an application is successful.

“This is another issue that will be exacerbated by a chaotic no-deal Brexit. When times are tough, big lenders often put supporting small businesses on hold.”

Source: Talking Retail

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Alternative funding sector buoyant despite Brexit concerns

The alternative funding sector ‘sustained its willingness to think outside of the mainstream’ in 2018, according to Independent Growth Finance (IGF) boss John Onslow, although Brexit remains its “single greatest barrier”.

IGF provides flexible, asset-based funding to small and medium-sized enterprises (SMEs) across the UK.

John Onslow told Insider more companies are turning to alternative finance as it can be “key to achieving real growth without diluting equity”.

He added that the market had been driven by high liquidity levels in 2018, as well as high publicity for the sector itself.

However, on the UK’s exit of the European Union, Onslow said: “Uncertainty over Brexit has caused some investment to be deferred this year and the implications of Brexit remain the single greatest barrier. 2018 has challenged the resilience of business.”

Research by IGF found that 500 SMEs in the £1m to £100m-turnover bracket said Brexit was their greatest concern. A third had experienced problems with funding requests being rejected, along with issues relating to slow decision-making or turnaround times.

Onslow added: “Political considerations – including Brexit and highly-profiled trade wars – have captured the consciousness of even the smallest SME.

“Despite the SME Health Index finding business confidence has declined, in IGF we have seen a sustained stream of SMEs achieving real growth in 2018, working hard to drive their momentum.”

The firm has also overcome challenges by working with business introducers across the UK and by investing in its staff. In the 12 months to 30 September 2018, IGF’s funds advanced were up by 70 per cent.

“The challenge is to stay relevant and ahead of market trends, whilst delivering value for money through excellent service,” Onslow told Insider.

IGF is headquartered in Redhill, Surrey. In November 2018 it was named Insider‘s Alternative Funder of the Year at the Central and East Dealmakers Awards.

Source: Insider Media

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Government Grants for SMEs in the UK – A Hands-on Guide

Winning a government grant can be a real boon for SMEs looking for funding, technology or expertise. In this post, we will discuss everything an SME needs to know about such grants.

Running a successful business is all about pre-empting, overcoming – and, at times – walking around hurdles. These hurdles come in every shape and size you can think of – from HR and compliance to marketing and branding. But if there’s one common denominator among all the problems businesses face, it has to be the money.

Take funding, for example. SMEs around the world and across the board are known to struggle when it comes to raising money. SMEs in the UK are no exceptions to this. In fact, so difficult is raising money via traditional, mainstream and high-street lenders that SMEs have gradually started thinking beyond banks and towards alternative funding channels.

In such times, the role played by the government becomes more crucial than ever. Government grants are, without a doubt, the face of this role. This is the reason why understanding how these grants work and how your SME can give itself a good shot at winning one are important. In this post, we will try to cover what government grants for SMEs are, how they work and how to find and apply for a grant that is suitable for your business.

What is a Government Grant?

A government grant is essentially an incentive package made available by various government bodies and organisations to individuals as well as businesses. Government grants (barring the finance grants) are usually non-repayable.

Depending upon the nature of the grant body and the grant objective, these grants can come in a variety of sizes and formats. As far as small businesses are concerned, such grants range from £1,000 to £500,000. Some of the bigger and more prized grants can go even higher.

Why Are Grants Given to SMEs?

Government grants have been there for a long, long time. The names and forms they have taken may have changed over time – from business subsidies to business support – but the objectives haven’t. If you were to analyse government grants across business sectors and districts, two things become very clear:

  • Most government grants have a singular objective – to keep the economy growing. This objective takes many avatars such as employment generation, sectoral development, regional development and so on. Grants that have these objectives are more or less permanent fixtures.
  • Other grants aim to follow, aid and complement ongoing policies of the government. Such grants typically reflect the incumbent government’s views in regard with trade, environment, social welfare, technology etc.

To put things in a more sweeping perspective, we can say that government grants have three clear objectives:

  • Boost economy through regional and local development
  • Generate employment by supporting businesses
  • Create an economic environment that encourages innovation, entrepreneurship and ‘home-grown’ research

As of 2018, nearly 200 government grants are available for SMEs in the UK.

Why SMEs Should Take Government Grants More Seriously

Even though government grants are incredibly appealing, very few SMEs actually realise the potential of such grants. Here are some features of government grants that SMEs can’t afford to overlook:

Government Grants Are Diverse

Very specific grants are available across all business sectors. This allows SMEs to compete more fairly for similar grants.

Grants Are More Than Just Money

As we will discuss in the next part of this post, government grants offer much more than just money.

Winning a Grant Validates Your Business Idea

A large number of SMEs are stuck in the validation loop that stops them from expanding or trading more confidently. Inadequate funding makes matters even worse. A grant can be a good way to turn the corner in such times and receive external recognition and validation.

Government Grants: Shortcomings & Drawbacks

While the features associated with government grants are certainly attractive, there exist shortcomings and drawbacks you should be aware of:

The Competition Is Fierce

The competition for government grants is fierce to say the least. Since young businesses, start-ups and established businesses all tend to spill over into the space that’s reserved for SMEs, the competition can become entirely off-putting.

It Can Take Months Before You See the Money

Applying for a government grant isn’t always the smoothest of processes. It can take many months for the assessment process to conclude, making grants irrelevant for businesses that require urgent funding.

Grants Can Never Replace External Funding

Given their limitations in size and scope, government grants cannot replace external, third-party funding channels – not in the long run, anyway.

Types of Government Grants for UK SMEs

In our guide to start-up funding, we have already discussed the various types of government grants. In the context of SMEs, these types remain more or less the same.

Direct Grants

A direct grant is a project-specific and objective-driven cash reward to businesses that meet the criteria. This is what most businesses think of when they think of a government grant.

Despite being the most popular and sought-after type, these grants come with a host of limitations and riders. As things stand today, direct grants focus more on young SMEs (trading for 5 years or less) in economically disadvantaged regions and districts. Furthermore, the grant amount is usually on the lower side. Given these facts, one would be forgiven to think that direct grants are good for encouraging businesses, but not necessarily supporting them.

  • Direct Grants Are Not Free Money!

It’s a common misconception among business owners and operators that winning a direct grant is just like winning a lottery. The fact is direct grants are nothing like free money.

Almost every direct grant scheme requires you to match the grant amount – a pound for a pound.

In other word, a direct grant of £10,000 will need you to raise £10,000 on your own before you see any of the grant money.

We, at Commercial Finance Network, have helped numerous SMEs raise the capital required to win direct grants. You can learn more about our services here and request a free quote here.

  • Most Direct Grants Are Project-Based.

Unlike other grant types, direct grants are almost always project-based. The grant objective clearly tells you what you’re expected to spend the money on. Some grant bodies go so far as to monitor the spending.

  • Example

A good example of an SME direct grant is the Business Energy Efficiency Programme organised by various local councils in the West Midlands. This direct grant offers rewards up to £20,000 for the qualifying businesses that implement energy saving technologies in their operations.

Finance Grants

If you are looking for a well-meaning financing support for your SME, finance grants should always be the focus of your search.

A finance grant combines the features of grants and loans. Also known as ‘soft loans’, such grants are an excellent way of raising a significant sum of money for SMEs. Typically, the loan amount can go from as low as £5,000 to as high as £250,000. Finance grants are usually available around the year. Unlike direct grants, however, finance grants are repayable. The terms of repayment are subsidised through public funding. So, you may either get a loan that’s fully free of interest, or you may get a lenient repayment schedule with generous repayment holiday months/years.

  • Soft Loans Are Not Always Project-Based

Unlike direct grants, finance grants (soft loans) aren’t always project-based. The grant objectives can be wide-ranging to allow you more control over the spending.

  • The Qualification Criteria Can Be Stringent

Quite a few finance grants require you to prove that your SME is unable to secure funding from other mainstream lenders. This translates into additional documentation and longer processing times.

  • The Grant Amounts Are Flexible

The biggest advantage that finance grants offer is their flexibility. You can negotiate the loan terms and amounts with the grant body (much unlike direct grants that leave no room for negotiation).

  • Example

ART Business Loans make for a good example here. This finance grant offers low-interest loans to businesses that generate employment in the West Midlands. The loan size ranges from £10,000 to £150,000.

The UK Export Finance (UKEF) scheme is also a very fitting example of how government grants are at their efficient best when partnered with private investors and lenders. It aims to promote exports to our major cross-border trade partners by helping SMEs raise funds, win overseas contracts/orders, fulfil these orders and access trade finance.

Tax Relief Schemes

Tax Relief Schemes are indirect grants offered to qualifying SMEs. There are little to no upfront benefits to such schemes. In the long run, however, these tax savings can be very attractive. Here are some common and ongoing tax relief schemes that you can focus on:

Tax Relief Schemes for SMEs

1. Employment Allowance

Most businesses are required to contribute to the National Insurance every year. By securing the Employment Allowance, your business can save up to £3,000 on these contributions.

2. SME Business Rates Relief

All properties owned by businesses are charged business rates by local councils. If your business holds one property (valued at £12,000 or less), you can apply for 100% Small Business Rates Relief. For businesses holding two or more properties, it’s still possible to get proportionately lower relief.

3. Corporation Tax Reliefs

  • Capital Allowances let SMEs claim tax reliefs against the purchase of business assets.
  • R&D Reliefs are meant to encourage R&D spending.
  • Creative Industry Tax Reliefs provide special tax reliefs to ‘creative’ industries such as arts, film, theatre, music and digital media.
  • The Patent Box is one of the most exciting tax relief schemes out there. This scheme allows inventors and businesses to claim tax reliefs against profits made by the use or licensing of their patents.
  • There are many other Corporation Tax Relief Schemes tailored for the need of SMEs. You can refer to this page to learn more.

Tax Relief Schemes for SME Investors

1. Enterprise Investment Scheme (EIS)

The Enterprise Investment Scheme is perhaps the strongest investment magnet for SMEs. Under this scheme, SME investors can claim tax credits and reliefs of up to £300,000 each year. This scheme applies to total investment of up to £5 million per year.

2. Seed Enterprise Investment Scheme (SEIS)

This scheme is similar to EIS but limited in scope to serving start-ups and young businesses. If your SME has been trading for no more than 2 years, your investors can claim tax credits under the SEIS.

SME Grant Finder: How to Find Government Grants

Searching through available government grants is no longer a dreadful or time-consuming task. Just head over to the Business Finance and Support page and filter through the available options. This page allows you to zero in on government grants based on your location, business type, size and turnover.

5 Steps SMEs Need to Take to Win Grants

1. Applying Early

Applying early gives you an important edge over competitors. To be able to do this, you need to be aware grant announcements.

2. Preparing a Detailed Business Plan

It doesn’t matter what sort of loan, support or grant you are after – you will always need a business plan that paints a clear picture of the present state of your business and your future objectives. A good, in-depth business plan that answers questions even before they are asked enormously improves your chances of winning government grants.

3. Understanding the Grant, the Grant Body and the Grant Objectives

If your grant application is rejected, it’s very much likely that the fault lies neither with your business nor the grant – it lies with the incompatibility of your objectives with those of the grant body. The best way to avoid this is to apply for grants that share objectives with your business.

4. Having Professionals on Board

If you don’t have prior experience in applying for grants, it’s always a good idea to hire grant experts and consultants.

5. Preparing a ‘Winning’ Grant Application

A generic, off-the-bat grant application is never going to win you a grant. Preparing a grant application that lets the grant body know how you share in their objectives is the key.

We Help SMEs Grow!

Government grants offer a host of opportunities for SMEs to raise the much-needed funding. It is, however, never a good idea to rely heavily on government grants. The timelines are unpredictable, the amounts are usually lower than what you need and you will, in most cases, need to raise external funding anyway.

But it’s not all bad news – there are easier way to fund your business.

Commercial Finance Network – a leading whole of market broker – has helped many SMEs across the UK secure fast and low-interest funding. To know more about our industry-leading finance services, you can visit this page.

Check your eligibility for a low-interest business loan and other finance products by requesting a free quote here.

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Lending to UK SMEs in the property sector dropped by over £1bn last year

Bank lending to UK small and medium sized businesses (SMEs) in the real estate sector has fallen nine per cent in the last year from £13.9bn to £12.7bn.

According to commercial lender Ortus Secured Finance, lending to SMEs in the real estate sector fell significantly quicker than the level of overall lending to UK small businesses, which dropped two per cent from £58.2bn in 2016-17 to £57bn in 2017-18.

The London-based lender says that the lack of funding for property developers is helping to contribute to the current housing crisis with not enough homes being built.

In London alone just under 33,000 homes were built in the past year, compared to the 66,000 that Mayor Sadiq Khan says the capital needs.

Jon Salisbury, managing director at Ortus Secured Finance, said: “Smaller property developers are struggling to access the funding from traditional lenders to compete in a tough market.

“The fall in lending to SMEs in the property sector is indicative of the wider lack of financing available to smaller businesses from the high-street lenders across all industries as the economy rebalances.”

However, the Ortus data showed that there were three sectors where SMEs saw in increase in bank lending in the last year, including manufacturing which saw the greatest rise of 11 per cent to £6.3bn in the last year.

“Although a few key sectors, such as manufacturing, saw increased bank lending, more needs to be done to make sure financing support reaches businesses across all parts of the economy,” said Salisbury.

“Access to finance is crucial for smaller businesses to make the investments need to take their operations to the next stage, but without it many can see their growth stall and operations limited in scope.”

Source: City A.M.