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Lending To Small Businesses Still Falling

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http://www.telegraph.co.uk/finance/businessclub/8274425/Lending-to-small-businesses-still-falling.html

bankofengland_1808887c.jpg

Bank of England graph showing bank lending to small businesses (those with a turnover of less than £1m) and small and medium-sized businesses combined (turnover under £25m)

The Bank’s latest quarterly Trends in Lending report found that while lending to UK businesses rose in November for first time since February last year, the overall stock of lending to companies contracted by £5bn in the three months to November.

Lending to the smallest busineses – defined as having a turnover of £1m or less – continued to fall in the past three months. The Bank reported that lending to small businesses was down by 5pc in the three months to September compared with the same period last year.

Banks also appeared to be increasing the cost of lending to small businesses at the end of last year, with spreads over reference rates, fees and commissions all rising in the last three months of 2010. The cost of borrowing for large and medium-sized businesses fell.

The Bank’s network of agents reported that many small companies continued to focus on repaying bank debt rather than borrowing more, although some lenders told the Bank that they expected lending to small and medium-sized businesses to “grow slightly” in 2011 as prospects in the wider economy gradually improved.

So how is the govt going to get small businesses to borrow money when the bankers are upping fees etc... and I suspect those running these small companies don't see much opportunity to make more profit via investment.

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http://www.telegraph.co.uk/finance/businessclub/8274425/Lending-to-small-businesses-still-falling.html

So how is the govt going to get small businesses to borrow money when the bankers are upping fees etc... and I suspect those running these small companies don't see much opportunity to make more profit via investment.

The real question is why should small businesses lending increase?

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businesses borrow to expand if they see a market, they obviously don't see a market.

this is the most obvious thing that is happening at the moment.

cutting the deficit has to be done, but it ain't going to expand the economy is it.

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Why do they put it 'Borrowing by small businesses falls'

Maybe they dont want to borrow money.

Correct, maybe they are so cash rich they are sticking two fingers upto the bankers and their fees.

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The real question is why should small businesses lending increase?

...I wonder if there are that many small business at the moment who want to borrow more....there can't be that many business looking to expand at the moment...more like siting tight to see how the future pans out. :unsure:

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http://www.telegraph...ll-falling.html

So how is the govt going to get small businesses to borrow money when the bankers are upping fees etc... and I suspect those running these small companies don't see much opportunity to make more profit via investment.

The Government isn't in the slighted bit interested in small business. The work of small business can be done by corporates/cronies, employing workers on minimum wage, and temporary contracts. Much more efficient. The first step is to close down credit to small (competing) businesses and eliminate the competition. Welcome to corporate mono culture.

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That'll be why this year's Venture Capital fundraising is massively higher (VCTs exist precisely to fund small businesses).

This year's combined total funds raised and fundraising announced is £664 million. That's a huge rise from £350 million last year, and £135 million just two years ago.

As one source of funding dries up, others step in to take its place.

[edit - typo]

Edited by porca misèria

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The Government isn't in the slighted bit interested in small business. The work of small business can be done by corporates/cronies, employing workers on minimum wage, and temporary contracts.

^^ This.

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I own a small business, well actually a SME now by the definition above. We have grown the company organically from scratch over the past few years without the need for debt. I recently asked the bank for a £20k overdraft facility (our first ever) as a cash-flow buffer during our imminent move to a larger office and the commencement of some (contracted) large projects which are on 90 day terms.

The bank kindly offered to extend me the credit for a £200 fee at 9.9% Interest. Fair enough. They then asked me to personally guarantee the £20k against my assets. I rent and have no mortgage so that would mean my savings. I asked the call centre monkey where the risk for the bank was, and why i would want to pay them to borrow my own money, but to no avail.

Needless to say, I will be transferring the funds from my own savings should they be required and collecting the £200 + 9.9% myself.

Banks are not businesses they are state-backed extortionists, they are not only socially useless they are commercially useless too!

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I own a small business, well actually a SME now by the definition above. We have grown the company organically from scratch over the past few years without the need for debt. I recently asked the bank for a £20k overdraft facility (our first ever) as a cash-flow buffer during our imminent move to a larger office and the commencement of some (contracted) large projects which are on 90 day terms.

The bank kindly offered to extend me the credit for a £200 fee at 9.9% Interest. Fair enough. They then asked me to personally guarantee the £20k against my assets. I rent and have no mortgage so that would mean my savings. I asked the call centre monkey where the risk for the bank was, and why i would want to pay them to borrow my own money, but to no avail.

Needless to say, I will be transferring the funds from my own savings should they be required and collecting the £200 + 9.9% myself.

Banks are not businesses they are state-backed extortionists, they are not only socially useless they are commercially useless too!

Agreed.

Small business was intentionally raped by the banks during the crisis - gun at the head threat to pull down those businesses if the banks did not get their bailout.

Should have let the banks go down, they are not only useless they are an active deterrent to business in the UK. Small business have seen how they were treated during the downturn - so there is no way they are going to put themslevs at the feet of the bankers further - unless the opportunity is a total no-brainer.

Edited by OnlyMe

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I own a small business, well actually a SME now by the definition above. We have grown the company organically from scratch over the past few years without the need for debt. I recently asked the bank for a £20k overdraft facility (our first ever) as a cash-flow buffer during our imminent move to a larger office and the commencement of some (contracted) large projects which are on 90 day terms.

The bank kindly offered to extend me the credit for a £200 fee at 9.9% Interest. Fair enough. They then asked me to personally guarantee the £20k against my assets. I rent and have no mortgage so that would mean my savings. I asked the call centre monkey where the risk for the bank was, and why i would want to pay them to borrow my own money, but to no avail.

Needless to say, I will be transferring the funds from my own savings should they be required and collecting the £200 + 9.9% myself.

Banks are not businesses they are state-backed extortionists, they are not only socially useless they are commercially useless too!

It seems to me the bank were being very sensible; why did you not simply use your savings in the first place?

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Agreed.

Small business was intentionally raped by the banks during the crisis - gun at the head threat to pull down those businesses if the banks did not get their bailout.

Should have let the banks go down, they are not only useless they are an active deterrent to business in the UK. Small business have seen how they were treated during the downturn - so there is no way they are going to put themslevs at the feet of the bankers further - unless the opportunity is a total no-brainer.

I am convinced that if we reformed banking in a meaningful way we could transform entrepreneurialism in this country. I really don't understand how the private sector can take up the slack from public sector job losses with the financial sector in the state that it is in.

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It seems to me the bank were being very sensible; why did you not simply use your savings in the first place?

Indeed. Why don't we all just use our savings to buy houses too?

I mean, what actually is the purpose of loans anyway?

Money lent at risk and paid back with interest calculated based on a risk premium plus a margin for profit? Pah!

Financial services? Financial shmervices!

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It seems to me the bank were being very sensible; why did you not simply use your savings in the first place?

I'm going to re-reply to this less sarcastically as it occurred to me that you might not be trolling and that this is actually a genuine question.

The short answer is convenience. In the same way that a company might buy in any other service, it saves time to lift up the phone, speak to a call centre monkey, get the facility and move on with making profit from my core business activities.

If I lend the money to the company myself then I have a whole load of administrative tasks to do and to get the accounts team to do at a time that we are busy with important projects. This is a distraction.

However, like any other service, I expect value for money and I like to feel I'm not being ripped off. If I am being ripped off I will go out of my way to deprive the company doing the ripping off of business.

A bank lending you your own money at interest is ripping you off. Why the hell would anyone want to buy that service?

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I'm going to re-reply to this less sarcastically as it occurred to me that you might not be trolling and that this is actually a genuine question.

The short answer is convenience. In the same way that a company might buy in any other service, it saves time to lift up the phone, speak to a call centre monkey, get the facility and move on with making profit from my core business activities.

If I lend the money to the company myself then I have a whole load of administrative tasks to do and to get the accounts team to do at a time that we are busy with important projects. This is a distraction.

However, like any other service, I expect value for money and I like to feel I'm not being ripped off. If I am being ripped off I will go out of my way to deprive the company doing the ripping off of business.

A bank lending you your own money at interest is ripping you off. Why the hell would anyone want to buy that service?

don`t draw a salary for a couple of months, same difference?

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It seems to me the bank were being very sensible; why did you not simply use your savings in the first place?

Putting your own money in = capital introduced, which does nothing other than alter the balance sheet.

Borrowing = + liability of which you can charge the um charges against your PCTCT.

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HSBC charge my Ltd company £200 every year to renew my credit faciltities of £10k, the bank manager told me they can go upto £10k in branch, anything higher has to be referred to head office.

Personal guarantee's were signed by myself and the other director, this is standard practice for any bank providing credit lines to Limited Liability companies is it not? :huh:

£4k on credit cards and £6k overdraft. (Overdraft never used)

Main supplier provides 60 day credit terms and conveniently takes credit cards which further extends our credit to 90 days with the card balance paid off in full every month.

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I'm in the process of obtaining some funding for the next three years. No overdraft and previous business loan paid off early 9 months ago as it made sense to get rid of a 6% loan while savings were making nothing. Now need investment for staff and new business options - working with business consultant to put together business plan - will be interesting to see what options are out there for us.

Edited by Kaine

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I'm in the process of obtaining some funding for the next three years. No overdraft and previous business loan paid off early 9 months ago as it made sense to get rid of a 6% loan while savings were making nothing. Now need investment for staff and new business options - working with business consultant to put together business plan - will be interesting to see what options are out there for us.

Do you fall within the criteria for a VCT qualifying company (no more than 7 million business value, 50 staff)? If so, make sure you and your business consultant consider VC as a source for your fundraising.

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http://www.telegraph.co.uk/finance/businessclub/8274425/Lending-to-small-businesses-still-falling.html

So how is the govt going to get small businesses to borrow money when the bankers are upping fees etc... and I suspect those running these small companies don't see much opportunity to make more profit via investment.

Why would the Government want business to borrow more? The last 10 years have been a debt aberration. The levels of borrowing seen were not consistent with stable long term growth, more like super credit bubble leading to collapse. It is normal that businesses are paying off debt, not borrowing more. This is a clearly a good thing.

Funny how one hand the Banks are criticised for a decade of greedy reckless lending whilst at the same time everyone complains when they try to be sensible.

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There is an assumption that all small businesses need to borrow money in order to get started or to develop. Speak to most successful small businessmen however, and they will tell you that keeping borrowings to an absolute minimum and growing the business organically from profits is a far preferable - if slower - way to go.

The vast majority of new businesses end in failure. Borrowing money from a bank and spending it on unnecessary frills such as fancy offices and a girl to answer the phone is one of the main reasons for this. If a business needs to go cap in hand to the bank to fund working capital then it is already showing signs of failure.

Money should only be borrowed for capital purchases such as plant and machinery. Credit to customers - if it is really necessary to extend credit - can be financed through factoring or invoice discounting. There is no suggestion that the banks are unduly unwilling to lend on these bases as the risks are lower.

Too many businesses have become accustomed to working on an almost permanent overdraft. I have worked that way in the past and can confirm that it is a sign of a very poorly run business!

A tightly run small business should be able to generate its own working capital. If a sizeable sum is needed at start-up then either the business model is wrong or one should be looking at private finance in exchange for equity. Avoid the bank if possible.

Edited by Mr Yogi

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There is an assumption that all small businesses need to borrow money in order to get started or to develop.

Not really. Just that some of them do, and that there's value in them.

Money should only be borrowed for capital purchases such as plant and machinery.

Plant and machinery - tick.

Business premises - tick.

Stock - tick.

Buying in to a business (e.g. franchise, intellectual property) - tick.

Cost of meeting regulatory requirements - tick.

Working capital to employ people - tick.

R&D/Product Development - tick.

Bringing product to market - tick.

Just some of the kinds of costs that a startup business may face. If you can't just draw on sources like the BoMD (c.f. EasyStelios) then you have to go elsewhere for finance.

A tightly run small business should be able to generate its own working capital. If a sizeable sum is needed at start-up then either the business model is wrong or one should be looking at private finance in exchange for equity. Avoid the bank if possible.

I've already pointed at Venture Capital in this thread, so I'm with you on non-bank finance. But I wouldn't be dogmatic about it: in some cases I expect the bank really is the best (or only) solution.

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