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How The Banks Hope To Help Small Businesses

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Credit where it's due. Britain's biggest banks appear to have made a serious effort to respond to the concerns that they are not providing enough financial support to small and medium size businesses.

The report of their Business Finance Taskforce, which will be published later today after bank bosses meet ministers to discuss their proposals, contains recommendations of substance, to improve the flow of credit and capital to the private sector, and also to provide a bit more confidence to smaller businesses that they have a right of reply and appeal if they feel mistreated by their respective lenders.

The proposals fall into three broad categories:

1) Initiatives to improve relationships with customers, which will include the provision of support for a network of business mentors, the establishment of a more independent and robust appeals process for businesses that feel poorly treated, and the creation of a new longer timetable for replacing existing credit;

2) New and improved sources of finance, including the creation of a new Business Growth Fund and help for mid-sized businesses to raise money on syndicated debt markets;

3) The collection of better business-lending data and the publication of clear information on what finance is available.

It's the Business Growth Fund which is the most eye-catching proposal. This will be a brand new institution which aims to make equity investments in businesses with a turnover between £10m and £100m.

The fund is a response to the concern - which feels almost as old as capitalism itself - that the UK lacks appropriate institutions to provide risk capital to smaller (though not micro) businesses.

For as long as I can remember, politicians and business folk have agonised that the UK is at a significant economic disadvantage compared to Germany, because we have no equivalent of Germany's Landesbanken, the banks that provide longer term finance to small and medium size businesses.

And since these are the businesses that generate so much employment and wealth, it is a financing gap that is more urgent than ever to fill in Britain, given the looming squeeze on public expenditure and the expectation that the years of boom for the UK financial services sector are well and truly over.

The banks are pretty ambitious for their Business Growth Fund. They hope it will make something like £1.5bn of investments over a number of years, from a series of regional offices (as well as an HQ).

That can be seen as a serious commitment to help businesses with growth potential, in that those companies that take advantage of the new capital on offer should also be able to lever in additional debt finance.

The fund will take stakes in businesses of at least 10% and will hold them for about five years. The aim is to appoint a chairman by the end of the year and start assessing investments as early as next spring.

Interestingly the leading banks behind the report - HSBC, Barclays, Santander, Lloyds, Standard Chartered, Royal Bank of Scotland - will invite other financial institutions to invest in the fund, alongside them.

As a minister said to me last night, "I think we have had some kind of return for kicking the banks; this new fund looks as though it will play a useful role".

............the Treasury is painfully aware that if asset-backed bond markets don't perk up a good deal more in the coming few months, it will have to keep the banks on financial life support for a good deal longer than it would want.

More islamification of small business banking at the link

I think the idea here is that if they can spread the damage wide enough they'll get support no matter what.

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After all this time .... they offer proposals? :blink:

It shows how far gone the banks were - they couldn't lend from their empty shells - they've been regrouping so they could carry on with their bent scams!

This is from Jan 2009 - nearly TWO years ago!


Equifax Business Failures Report reveals full scale of downturn in 2008 with significant increases in the number of firms going bust in the last quarter


13th January 2009

– Leading business information provider, Equifax, has released its Business Failures Report for the whole of 2008 as well as for the last quarter of the year. And the figures reinforce the British Chamber of Commerce report released earlier today – that the downturn has taken real hold in the UK economy with little sign of any uplift so far.

The overall increase in business failures for the whole of 2008 compared to 2007 is a staggering 18.2%. Equifax External Affairs Director, Neil Munroe, believes this shows the real consequences of the downturn in consumer confidence, combined with continued restrictions on lending to consumers and businesses.

"To see the number of businesses going bust for the whole of the year rise so significantly is very worrying. But what is equally worrying is the increases in failures in the last quarter of the year. Comparing Quarter 4 2007 with Quarter 4 2008, there is an increase of 32.1% in businesses going into administration. And further evidence is provided of how the downturn has impacted on businesses through the year when we compare Quarter 4 2008 with Quarter 3 2008, with a 24.2% increase in failures.

"These figures reinforce what every economic commentator is saying - that we are not yet at the turning point of the recession, with the numbers of businesses going to the wall highly likely to continue to increase in 2009. It is, therefore, very clear that the efforts from Government, such as the loan guarantee scheme announced today and the initiatives by banks such as fixing fees and releasing more credit, will be absolutely crucial, especially for smaller businesses struggling with cashflow management."

The Regional Picture

Around the country the overall picture for the year is very gloomy with only Scotland managing to see a drop in failures year on year – albeit of just 0.9%. The North East saw the biggest rise in failures year on year at 41.2% and this was even worse for the fourth quarter of the year with a year on year increase of 57.8%. Other Northern regions also struggled through the year with a 29.1% year on year increase in businesses failing in the North West and a 23.9% increase in Yorkshire & Humberside.

Aside from Scotland, the area of the country that showed the smallest increase in failures for the year was the East of England, at just 8.4%, perhaps reflecting the region's lesser dependency on some of the core sectors affected by the downturn, such as construction, manufacturing and services.

And the two areas that are often the last to experience the real impact of a downturn also saw considerable increases in failures during 2008. London saw a 15% increase in failures year on year and a 25.5% increase in the last quarter compared to the same period in 2007. And in the South East 17.8% more businesses went bust during 2008 than in 2007, with a 31.8% increase year on year in failures in Quarter 4.

Key Sectors Also Struggle

Not surprisingly, the Construction sector saw the greatest year on year increase in failures, with 32.4% more businesses folding in 2008 compared to 2007. And the last quarter of the year was particularly hard for this sector with a 54.7% increase in failures compared to the same period in 2007.

The Retail sector was the next hardest hit, with a 23.9% increase in failures for the whole of the year. And, as all the headlines in the last month have proved, the last quarter of 2008 was very difficult for the sector with a 42.5% increase in failures compared to the same period in 2007.

The Transport & Communications sector, which is heavily dependent on the Construction and Retail sectors for its business, saw a 17% increase in failures in 2008. The Services sector saw an 13.8% increase in businesses going into administration throughout the whole of 2008, compared to 2007, closely followed by the Manufacturing sector at 11.2%.

The sector that appeared the most resilient in 2008 was Wholesale, with a 7.2% increase in failures for the year as a whole. And this resilience appeared to hold through to the end of the year with only a 14.1% increase in failures in Quarter 4 2008 compared to the same period in 2007.

"With significant downturns in orders, combined with restricted access to credit for a wide range of business organisations, it is not surprising that the numbers of those that have simply had to close their doors for good has increased significantly in 2008 and particularly in the last quarter of the year, concluded Neil Munroe.

"It is clear that stimulus is needed from Government and the banks to inject funds into business lending to stem this flow of failures in 2009.

"It is also crucial that those businesses that are holding their own take the right precautions to protect themselves from some of the risks of these exceptionally tough trading conditions. They need to continue to use rigorous credit checks, alongside ongoing monitoring of the financial status of their customers and suppliers. By operating best practice and harnessing the power of the latest risk management solutions, firms can minimise the threat of bad debt and secure the future of their business."

"It is clear that the Government action is essential to inject confidence into business lending to stem this flow of failures in 2009" concluded Neil Munroe

Edited by erranta
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