Bank Lending to Britain's Small Businesses Tumbles by £700m

Banks lending to small businesses tumbled by £700m despite spite of billions of pounds worth of support from credit easing schemes on offer from the UK government and central bank.

Bank of England data shows that bank lending to small-to-medium sized enterprises (SME) plummeted on the month in April.

Survey data compiled for the SME Finance Monitor reveals that just over three quarters of SMEs are happy non-seekers of finance. Those who put themselves as potential future seekers of finance mostly blamed the dire economic climate for putting them off of borrowing. Almost half are unaware of credit easing initiatives.

"The news that lending by the main high street banks has fallen by £700m is disappointing, especially when they account for 85% of lending to small firms," said John Allan, National Chairman of the Federation of Small Businesses (FSB).

"However what the figures don't take into account is the number of businesses that are approaching alternative funders, such as peer to peer lenders, for finance.

"We have long said that there needs to be more competition and sources of finance for small firms because relying on the big five is clearly not working ... our own research shows that business confidence is up, suggesting firms want to invest but to do this many need to the finance to make it happen."

The Bank of England data showed overall net lending to business had tumbled by £3bn, down 4% on the year in April.

Chancellor George Osborne has extended the Funding for Lending Scheme, a credit easing initiative worth around £80bn, to focus it more on improving access and affordability in SME finance.

Now banks are offered bigger financial incentives to grow their lending to smaller firms, who are seen as the lifeblood of the economy and crucial to a recovery in GDP growth and job creation.

"It may be too soon to see any effects of these changes in the April data," said Citi's UK economist Michael Saunders.

"But, so far, rather than providing 'Funding for Lending', the FLS still seems to be providing 'Funding for Not Lending'."

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40% of Graduates not in Full-Time Work

Only 60% of former students find work in the first twelve months after leaving further education, a leading graduate careers website reports.

According to a major survey of nearly a quarter of a million students published by the Higher Education Careers Services Unit, over 21,000 graduates remain unemployed after a year - a higher rate than the national average; while many had continued with their studies or gone into training.

The survey by Graduates.co.uk also found an increase in the number of graduates abandoning highly competitive job markets and taking the step into self-employment. Although the number of former students becoming self-employed remained relatively low at 5%, the figure represents a substantial increase over recent years.

"The number of graduates looking to become self-employed doesn't really surprise me," said Adam Grunwerg from Graduates.co.uk ,  "It's so much harder to get a good graduate job nowadays, especially with the increase in assessment centres, pre-interviews and tests in what has become a highly competitive market."

The migration of the majority of graduate vacancies to London also contributes to joblessness and the increase in self-employment amongst former students.

"The 'Dragons Den' culture of TV programmes and government initiatives such as start-up loans has lowered the barriers to entry for starting a business," said Adam, "In fact, we might have to start adding new words like 'gradpreneur' to the dictionary."

"Hard times tend to bring out the best in people, and a market of well-motivated graduates bodes well for the future."

"I hope this trend continues because the more young start-up businesses we have, the lower the barriers to entry for students it becomes."

What are graduates doing now?

In employment - 61.8%

Self-employed - 5%

Unemployed - 8.6%

Working and studying - 8.4%

Still in further education - 13.1%

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Good News as UK economy sees signs of hope

The UK economy is showing more signs of getting back on its feet as new figures out today show parts of the services sector expanding at their fastest pace since before the financial crisis.

Consumer spending is at last picking up, according to the study from the Confederation of British Industry (CBI), after a long squeeze and businesses are increasingly optimistic on growth.

Andrew Sentance, a former member of the Bank of England’s monetary policy committee (MPC), hopes it could soon be time to start raising interest rates as growth picks up.

Consumer services firms like bars, restaurants and hotels saw sales rise sharply in the three months to May, reaching their fastest pace since August 2007, the CBI’s survey shows.

Those with rising sales outnumbered those with falling sales by 10 percentage points in the quarter. Those strong figures pushed up profitability – a net balance of 21 per cent reported an improvement in the quarter, the best result since November 2007.

Businesses now expect that growth to take hold – a balance of 30 per cent of consumer services are optimistic.

Professional services firms are also upbeat, with a balance of 29 per cent now optimistic – the highest level since February 2010 – and a balance of 21 per cent expecting sales to grow in the coming quarter. A balance of 21 per cent expect to hire more staff.

“What’s promising is that consumer services have seen growth in activity, and expect this to continue pointing to a greater willingness from people to go out and spend,” said the CBI’s Stephen Gifford. But he remains wary of announcing an all-out recovery.

“Conditions remain tricky, with consumers grappling with a squeeze on real incomes, and business confidence vulnerable to adverse developments in the global economy,” he warned.

Meanwhile PwC economist Andrew Sentance said a rise in rates in the near future may be necessary as the economy recovers, and could even boost, not slow, the UK’s recovery.

“There is a lot of discussion about problems for borrowers, but the longer these very low interest rates go on the worse things get for savers who are squeezed and adjust their spending down,” adding: “The arguments are not just one-way.”

And he said it is vital the Bank of England prepares the ground for a rise to make sure households and firms are not caught unawares and left unable to pay for their borrowing when rates do rise.

“If we are going to get rates up from these levels it needs to be a gradual process – the MPC cannot leave it until the conditions are right for higher rates and then suddenly raise them a lot,” he said.

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One in Five Shops Could Close by 2018, Warns Study

The Centre for Retail Research (CRR) is warning that High Streets could see 20% of their shops close down within five years as more people turn to the internet for their shopping.

The organisation, which conducts research into retail, technology and crime, says this would equate to 62,000 shops closing down.

The CRR believes large areas of the UK's High Streets would become housing.

It also says as many as 316,000 workers would lose their jobs.

The CRR says online shopping will continue to expand and the proportion of shopping done via the internet will double to 22%.

The report, which was produced by Prof Joshua Bamfield, said the first shops to go would be pharmacies and health and beauty stores.

Retailers specialising in music, books, cards, stationery and gifts will be next.

DIY shops will also suffer.

In its report, the CRR compares the costs of opening a High Street store and an online warehouse.

It says opening a small store on a High Street in the Midlands would cost about £10,000 a month, whereas opening an equivalent space in a warehouse on the outskirts of a similar town would cost between £650 and £1,800 a month.

The director general of the British Retail Consortium, Helen Dickinson, said the country would have to get used to a very different look and feel on the High Streets of the future.

The CRR estimates that there are about 280,000 shops across the country. Closures on the scale predicted by the organisation would leave 220,000 by 2018.

It points out that 16 major retailers have gone into administration this year, with the loss of almost 15,000 jobs.

The latest official figures on retail spending from the Office for National Statistics (ONS) showed retail sales volumes in April were 0.5% higher than a year earlier, much less than expected, with consumers increasingly using the internet to do their shopping, rather than going out.

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Businesses Judged on "Digital Identity"

Your business email and web addresses, as well as your phone number, speak volumes to consumers, according to new research by TalkTalk Business.

The survey finds that 95% of consumers say the type of phone number a business has makes a difference to them. In addition, 91% rate a company's professionalism by its web address and 63% judge small firms by their email address format.

And changes to these "digital identities" could bring in significantly more business opportunities for SMEs, says the report.

The findings also emphasise the importance of being online, with 80% of consumers saying they'd expect smaller businesses to have a website. Almost half of consumers say they'd prefer to use a website as the first point of contact to find out more information about a small business.

.co.uk is best

When it comes to web addresses, the co.uk web suffix is seen as the most reliable, reputable and professional. Addresses ending in .com were assumed to belong to larger companies, while the worst scoring suffixes were .net, .info and .biz – deemed to be the sign of a "disreputable" company by 41% of respondents.

Email addresses are also critical in creating the right impression, according to the survey. Almost two thirds (63%) of respondents say they form an opinion about a company based on its email address format alone. The best performers were the format firstname.surname@, which was seen as the most approachable, professional and reliable. Generic info@ addresses were seen as least approachable, while firms using Hotmail and Yahoo! risk being seen as unreliable and unprofessional.

Local landline telephone numbers are marginally preferred over freephone numbers. However, just 6% of consumers prefer a mobile number and premium numbers are unpopular with all but 0.6% of consumers.

Charles Bligh, managing director of TalkTalk Business, said: "SMEs clearly need to give serious consideration to how they are managing their digital identity and the impression it may be making on customers and prospects. Those SMEs that have still not taken the digital plunge need to consider the huge business opportunity they are missing."

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Cyber Crime Costs Small Firms Nearly £19bn a Year

Small businesses across the UK could be losing billions of pounds every year to cyber criminals and fraud, it has emerged, with the average small firm facing a near £4,000 cost.

A new report from the Federation of Small Businesses said cyber crime and fraud cost its 200,000 members around £800m a year, or £3,926 each on average.

But the total cost for small businesses across the UK is likely to be much higher, Publicservice.co.uk understands.

Government figures estimate that there are 4.8 million small firms across the country. This would mean a total cost of more than £18.8bn based on the FSB's average.

The federation said that around three in 10 of its members had been victims of fraud.

And when it came to online crime, the most common threat faced was from virus infections, which a fifth of businesses had been victims of. Another 8 per cent had been victims of hacking and 5 per cent had suffered security breaches.

But despite the costs, almost 20 per cent of businesses had taken no steps to protect themselves from cyber crime.

Wider economic repercussions were also feared with many small businesses refusing to trade online due a lack of faith in security.

"Cyber crime poses a real and growing threat for small firms and it isn't something that should be ignored," said Mike Cherry, the FSB's national policy chairman.

"Many businesses will be taking steps to protect themselves but the cost of crime can act as a barrier to growth.

"Many businesses will not embrace new technology as they fear the repercussions and do not believe they will get adequate protection from crime.

"While we want to see clear action from the government and the wider public sector, there are clear actions that businesses can take to help themselves."

The federation has now issued new advice to small firms, which follows previous attempts by the government to encourage businesses to take cyber security seriously.

Security minister James Brokenshire said: "We need to make sure that all businesses, large and small are engaged in implementing appropriate prevention measures in their business.

"This report will help give a greater understanding of how online security and fraud issues affect small businesses, giving guidance as well as valuable top tips to protect their business."

Business minister David Willets added: "We know only too well of the importance of securing buy-in from both big and small business in implementing appropriate protection against cyber risks - business success can depend on it. Increasing security drives growth."

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SMEs are too Reliant on Short-Term Debt from just Five Banks

Having grown increasingly frustrated at the failure of countless government schemes designed to get banks to lend more to companies, the Business Secretary has resorted to stating the obvious: that entrepreneurs need more alternative sources of finance. He’s right. With Britain’s painfully concentrated banking sector under pressure to repair its capital position, new sources of finance are a more likely solution to the credit impasse than flogging the ailing, if not moribund, horse of bank lending.

The problem is not a new one. The retreat of banks from SME lending since the financial crisis – albeit the likes of Santander and RBS are now making serious pitches for this market – has simply highlighted serious long-standing weaknesses in the British economy.

Our small companies are far too reliant on short-term debt provided by just five high street banks. Equity investment is chronically under-utilised, with less than 5pc of the UK’s small firms opting for it, and our woefully underdeveloped corporate bond market has left medium-sized firms unable to access the private placement market for long-term funding. Their counterparts in the US and Germany have used this route – tailored lending agreements with institutional investors – as an alternative when their banks aren’t interested.

In other areas, however, the UK is far from lacking in options. From asset-based lending, where small companies have cash advanced against their machinery or invoices, to online platforms, which match savers with credit-starved small companies or even allow private businesses to sell equity stakes to the public, there’s an array of alternatives available.

Sadly, there is often a chronic lack of awareness of them among business owners and none of them adds up to much yet in terms of market share. Some 80pc of all credit to small, growing businesses,which create the vast majority of jobs, comes from giant banks.

There are levers that Government can pull. One is regulation – the financial system discourages equity investment by providing tax deductions for debt interest payments but not for the dividends paid to shareholders, for example – and another is the work already being done to create a state Business Bank. But even getting companies to “consider the options”, as the CBI urged on Monday, would be a start. Mr Cable will be hoping business owners are listening.

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Top 5 Business Lessons from Sir Alex Ferguson

After almost 27 years at the helm of one of the most successful clubs in the world, Alex Ferguson is stepping down as manager of Manchester United. He may not be universally loved but his achievements are undeniable, as are the lessons any business owner could learn from the Scot.

1. Find the best people and make them better

Ryan Giggs, Paul Scholes and Rio Ferdinand are just a few of the players Alex Ferguson built a winning team on. While other clubs let their talent be tempted abroad, Manchester United held onto their assets and Alex Ferguson constantly revolutionised the way he used them. Seven seasons ago, who would have put Rooney in midfield? Now, Ferguson knows that's where he's best used.

There's more than one lesson in this. Retaining talent is vital but understanding your staff's expertise is even more crucial. Don't miss out on opportunities to retrain or reuse people who've been in your ranks for years.

2. Choose an image for yourself and use it

Alex Ferguson is synonymous with Manchester United. A huge proportion of people reading this article might not even remember another manager leading the club. In nearly 27 years in charge, Ferguson built a reputation of being formidable, fearless and most importantly, not to be reckoned with. A trip to Old Trafford wasn't just a daunting prospect because of the players, but because of the manager who awaited you too.

Remember this when dealing with your competition. You may not want to instil fear in those challenging for your market share, but, if you do, be prepared for a long haul battle of building an image for yourself and living up to it. King of Shaves' Will King hasn't maintained his market position by being timid.

3. Mind games work, if you've got the better mind

Alex Ferguson has never been far away from headlines. He is seemingly able to get away with controversies other managers wouldn't even consider. Abusing referees, swearing at reporters or not turning up for interviews doesn't sound like the actions of a man respected in his field, but Ferguson has made it work, because it's all part of the plan.

If you are going to walk close to lines of decency, or cross them altogether, make sure you have a plan too. Ferguson could never have got away with the things he did if they were uncalculated, random events. They were used to scare people he wanted scared, psych out people he wanted psyched and embarrass people he wanted in the limelight. Never forget the importance of a game plan when taking on the opposition

4. Stay on good terms with the most important people

Alex Ferguson may be one of the most controversial names in sport, but he isn't even the most controversial person at his club. The phrase "Love United, Hate Glazer" was first thrown around in 2005 and the club's owners haven't enjoyed a happy relationship with fans ever since. But has Ferguson ever said a bad word against his boss? You bet not.

The manager who doesn't seem to care what anyone think has always been very careful to keep the important people on side, and there's an important example there. Never forget the people you need right now or, more importantly, might need in the future. Keep them happy and they will be there for you when you need them most.

5. Know when to quit

After winning a 13th league title, and reclaiming the prize from a local rival in the process, could there be a better time to take a bow? Ferguson's children are grown up and soon Giggs, Scholes and Rio will all have to hang up their boots. The manager has had one last swing at the title, hit the target and is saying goodbye to waves of loyal fans.

The business lesson here is about knowing when to step back. It's not about giving up early as no one could accuse Ferguson of that, but it's about knowing the best time to move away. If you've achieved everything you set out to do, and are losing the things that make your business special, maybe it's time to throw in the towel rather than hang around to see what happens next.

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Businesses at Risk as Cyber Attacks Escalate

Research commissioned by the Department for Business, Innovation and Skills (BIS), shows that the number of cyber attacks hitting businesses has increased over the last year. Moreover, the Information Security Breaches survey found that some attacks had caused more than £1 million of damage. 

It showed that 87% of small firms experienced a security breach last year (up 10%), and that 93% of large organisations had also been targeted. To help guard against these attacks, which can cost a small business 6% of its turnover, the Government is offering further funding and guidance. The Technology Strategy Board has extended a scheme to allow small and medium-size enterprises (SMEs) to bid for up to £5,000 to improve their cyber security. BIS is also publishing a guide to help small businesses improve their cyber security and make it part of their business risk management process. 

Universities and Science Minister David Willetts said: “Keeping electronic information safe and secure is vital to a business’s bottom line. Companies are more at risk than ever of having their cyber security compromised — in particular, small businesses — and no sector is immune from attack, but there are simple steps that can be taken to prevent most incidents. The package of support we are announcing will help small businesses to protect valuable assets like financial information, Web sites, equipment, software and intellectual property.”

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Britain's Biggest Business Contest Returns with Thousands to Invest in Startups

The Pitch, one of the UK’s longest running small business competitions, has returned for 2013 with thousands of pounds for innovative startups.

Organised by BusinessZone.co.uk and sponsored by Constant Contact, Alibaba.com and ICAEW, the initiative was founded as a small event in Bristol in 2008 but has since grown into a nationwide entrepreneurial extravaganza that has helped hundreds of small companies on the road to success.

Like in previous years, the champion of The Pitch 2013 will receive business support worth thousands of pounds including mentoring from serial entrepreneur and Crowdmission.com founder Karen Darby and a day with the founder of phenomenally successful business Morphsuits.

But for the first time in the competition's history, an investment panel including Sift founder Ben Heald and investors from Heron Capital Partners has come on board with a minimum of £25,000 to invest in at least one company taking part in the competition.

Interested entrepreneurs need to apply at www.thepitchuk.com/enter by 30 June after which up to 50 shortlisted contestants will be selected to compete at The Pitch Live in Bristol on 25 September. Five finalists will then compete in the grand final for the chance to win the package of support.

At The Pitch Live, the investment panel will announce which companies they are interesting in backing.

Dan Martin, editor of BusinessZone.co.uk and founder of The Pitch, said: "Our competition had very humble beginnings and I never imagined how much it would grow.

"We are delighted to back for a sixth year and the investment we have on offer is just the injection Britain’s innovative small firms need to grow.

"But The Pitch 2013 isn't just about the contestants. We are on a mission to help as many small business owners as possible by providing advice and making connections.

"The Pitch Live on 25 September will be our biggest live event yet and we can't wait to welcome hundreds of entrepreneurs as possible to Bristol, a city that oozing creativity and enterprise."

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