Quarterly News

Raising finance - The facts and the myths

Everybody knows that we are in an economic downturn and that the banks have stopped lending money - or have they?

Contrary to popular belief, banks have not stopped lending money to individuals or businesses. If you have a good business case, there is still funding available to businesses from the high street banks. Quite interestingly, the banks themselves have noticed a drop in demand for finance from customers. Some customers are still making investments but most are cutting back on capital expenditure due to the uncertainty of the future, whilst others feel that they will not be able to get finance even if they do apply.

So what kind of financing are banks offering? Most customers now need help to fund their working capital, and debt factoring or invoice discounting have, in recent years, far outstripped the traditional bank overdraft as a way of financing this. Gone are the days of debt factoring having a stigma and only being for businesses in financial trouble. From the banks' point of view, it is a safer way to lend as security is taken over the debtors of the business. This generally means that businesses can gain larger advances than are available under a traditional overdraft agreement. The downside in the current economic climate is that this type of lending has become more expensive - banks used to get credit insurance on business customers, but this insurance is now often being withdrawn as more and more companies admit to financial difficulties.

Banks do admit that it is tougher now to get finance due to the economic downturn. In the past, a customer with a long standing relationship and good historic performance would have been required to submit little extra information in an application for finance. Now even those customers will have to provide detailed business plans, with at least 12 months of forecast profits and cashflow. The most important thing to bear in mind when presenting such information to the bank is to be realistic.

To aid small businesses, the government has recently announced a plan to guarantee up to £20bn of loans to help them survive the economic downturn. In return for a fee, the state will, in effect, insure banks against businesses defaulting on loan repayments.

Central to the plan is a £10bn Working Capital Scheme designed to help banks lend much needed capital to small businesses. Lord Mandelson said,

“The £10bn injection to banks represents a guarantee to enable them to free up working capital to sustain existing loans and create new ones.”

If you need any help with preparing information to be presented to the bank, please do not hesitate to contact us or your business adviser - it is important to get it right first time.

In the last edition

Autumn 2011 headlines

• Low-paid get a boost
• The Residence Test
• When does 10% = 4%?
• What a Relief

We provide four Quarterly News Journals packed with useful breaking news, all intended to keep you up to date with the latest information. We display one years worth of news, just in case you have missed something.

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