UK’s small firms optimistic about next year

New research from American Express states that more than half (51%) of the UK’s small business owners expect their firms to grow in the coming 12 months.

A further 37% expect their businesses to stay in the same shape, and only 11% expect their businesses to contract.

The American Express UK Small Business Barometer also states that seven in 10 small business owners are expecting growth to come domestically. Regarding the emerging markets sector, only one in 10 business owners said they would be looking to this region for opportunities.

Attracting new customers and maximising sales will be the key focus for small businesses in the next year, with only 14% focused on cutting budgets to ensure their business is in better financial shape. The vast majority (76%) are relying heavily on word-of-mouth to attract new customers, therefore having a good customer service experience will be key in driving future growth. Just over a quarter (26%) are expecting social media, such as Facebook and Twitter, to help build their new customer base.

Strategy and planning for the future is the area where more than half (56%) of the business owners interviewed wish they could devote more time. However, most admitted that they are operating on a short-term basis, with 38% saying they are only planning six months in advance and a third operating on a week-to-week basis only.

Stacey Sterbenz, director for American Express Small Business Services UK, said:  “While previously the focus might have been on cost-cutting or fixing cashflow issues, it’s encouraging that the majority of small businesses seem to be focused on growth, acquiring new customers and maximising any potential upturn in consumer confidence.

“Our research shows that it is more important than ever for businesses to invest in planning, marketing and customer service. With so many companies relying on word-of-mouth, going that extra mile for customers will be key in gaining a competitive edge and to take advantage of new trading opportunities.”

SMEs are depending on cash reserves to survive the recession

Research undertaken by Aldermore confirms that small and medium-sized businesses are continuing to rely on their cash reserves to see them safely through the recession and finance their future growth.

The research, which was conducted among 300 SMEs throughout the country, confirms that nearly two fifths (38%) are depending on cash reserves to fund their future growth ambitions. Of the remainder, 12% say they will turn to a bank loan, 9% to an overdraft, 10% will use leasing or hire purchase, 7% will use factoring and invoice discounting, and 4% cite funding by a commercial mortgage. Of the business owners surveyed, 8% said they will fund their future growth using their own cash and 10% say they are not planning to finance future growth at the moment.

Damon Walford, managing director of Aldermore Invoice Finance, said: “Given the continuing reluctance of big banks to lend to small businesses, it’s understandable that business owners have been forced to rely on their cash reserves to fund their future growth. But as these reserves become depleted, so business owners will need to consider alternative forms of funding, such as invoice finance and asset finance.”

Aldermore’s findings are supported by data released by International Trade Monitor, which said that a lack of confidence has led more than a fifth of all SMEs to consider alternative sources of funding. It says the top three sources are asset-based finance (44%), factoring (31%) and personal savings (26%).

Damon concluded: “Although SMEs have relied heavily on bank loans and overdrafts in the past, many business owners have realised the vulnerability of having all their eggs in one basket and are now considering diversifying their funding sources. SMEs have more choice than they may realise; it’s worth consulting an accountant or commercial finance adviser to discover just what’s available.”

Santander expands trade finance team

Santander Corporate & Commercial Banking is extending its support for businesses looking to expand through international trade, with the appointment of three regional specialists.

Peter Smith, Chris Lynch and Simon Dunn have joined Santander’s trade finance team as product directors for the north west, for Scotland and Northern Ireland, and for the north east and Cumbria respectively. This brings the team up to 18.

Peter has 35 years’ banking experience specialising in trade finance, having previously worked for HSBC and Fortis. Chris has been working in the sector for 15 years in a career that includes roles at Barclays, Lloyds and RBS, and Simon has more than 23 years’ banking experience with Lloyds Banking Group, with hands-on experience working with exporting and importing businesses.

All three will be responsible for developing and growing the business in their respective regions. They will work with local partners to provide the best possible advice and service to businesses with turnovers of up to £50m.

The team is led by Martin Hodges, head of trade finance. He has been actively growing Santander’s trade finance division since its inception in 2009. In the past three years, he has grown the business from a team of two and a handful of customers to a multi-million pound lending specialist supporting hundreds of smaller businesses across the UK.

Martin said: “It is great to welcome such experienced team members at such an exciting time for the bank. Over the past few years Santander has been establishing itself as a major supporter of businesses trading overseas, and with this expanded team in place I look forward to extending this support to businesses across the north, Scotland and Northern Ireland.

“A strong regionally-based team enables us to build local knowledge and treat all of our customers on an individual basis, getting to know their businesses and international aspirations so we can put together the best financial solutions to help them meet these aims. Our partnerships with organisations like UK Trade and Investment enable to provide a holistic relationship with our customers, focusing on support and advice over the long- term.”

Chancellor must pull out all the stops to support business growth

Ahead of the chancellor’s Autumn Statement next month, the British Chambers of Commerce (BCC) has called on the government to take forward targeted measures to boost business growth in the UK. The BCC continues to support the aims of the deficit reduction plan, but believes the government must pull out all the stops to enable British businesses to access new markets, invest and create jobs.
The BCC submission to the chancellor proposes the following:
Measures to promote business growth and exports

• Implementation of a Growth Voucher scheme. The £100m scheme could give 20,000 businesses with clear growth plans up to £5,000 each to get support to negotiate the planning system, advice on accessing finance or help growing their staff. Businesses applying for the scheme would need a demonstrable business growth plan.
• Implementation of an Export Voucher scheme. Together with Growth Vouchers, targeted Export Vouchers would build confidence and help to kick-start the rebalancing of the UK economy. Export Vouchers would encourage businesses on the cusp of exporting, or those looking to expand into new markets, to seek out and access the support they need from public or private-sector sources, with minimum bureaucracy.
• Greater support for UK exporters in overseas markets. The BCC proposes the government spends a further £100m per annum on in-market support for UK exporters in 18 key global markets, linking businesses to new opportunities by adding in-country trade advisers, embedding them with British Chambers overseas and implementing a quality accreditation scheme.

John Longworth, director general of the BCC, said: "The chancellor's Autumn Statement must include tough decisions to prioritise growth without adverse effects on the government's deficit reduction programme. We believe that resources need to be re-prioritised to support business growth, international commerce and the building of houses and infrastructure here at home.
“Our message to the chancellor is clear. Business will lead Britain's economic recovery, but it needs targeted support and a confidence boost from the government. Ministers must be bold and take some unpopular decisions, including a shift of resources from welfare spending towards crucial growth measures. It won’t be easy, but the interests of the nation must be put first so we can ensure a bright future for our children and grandchildren for years to come.
“Firms up and down the country have been looking for ways to grow, export to new markets and take on more staff in the face of weak growth and continued problems in the eurozone. While recent GDP data will give many businesses a confidence boost, the government still has work to do to ensure that our economic recovery is sustainable over the long-term."

Bank lending to leasing companies recovering

Bank lending to leasing companies has jumped 17% during the past 18 months, recovering from a slump that began at the start of the recession.

New data from independent finance provider Syscap found that outstanding bank loans to leasing companies stood at £27.2bn in August 2012, up from a 20-year low of £23.2bn in May 2011.

During the same period, bank lending to all businesses fell 5%, from £438.7bn in May 2011 to £417.1bn at the end of August 2012.

Syscap explains that demand for leasing is on the rise, with businesses increasingly turning to leasing rather than using traditional bank loans or overdraft facilities.

Many businesses have expressed their concern that traditional credit facilities, such as overdrafts, can be withdrawn at almost no notice. Even long-term loans can be withdrawn from businesses if the company’s turnover or profitability falls below a level set by the bank. Lease finance, however, stays in place just as long as the business is able to make its payments.

Philip White, CEO of Syscap, said: “Leasing has become the funding source of choice for many solid small businesses, offering a more secure way of funding investment or expansion than traditional bank loans or overdrafts. It is a vital source of funding for businesses that want to invest in new assets such as machinery and IT.

“It’s great to see that banks are responding to this demand by providing more finance to businesses through the leasing sector.”

Unpaid Bills on the increase for SMEs

Unpaid bills to SME businesses are now at the highest level (£35.3 billion) in almost five years, according to Bacs, with combined debts up by almost £2 billion compared to the first half of last year.
Bacs found that the average amount owed to small businesses stood at £45,000 at the end of 2011, up from £39,000 earlier in the year.
Additionally the average company is waiting 29.5 days longer than agreed payment terms to have their invoices settled, and that figure is also up, rising from 28 days reported in the first half of 2011. With large businesses insisting on payment terms of as much as 120 days, many suppliers could be waiting up to five months to be paid for work.
There’s an old saying that ‘a sale is not a sale until it is paid for’. This statement, amplified by the findings of the above research, serve to underline one of the biggest problems for SMEs – getting paid on time.
The quicker you can get paid in the current unforgiving environment, the better your cash flow and your business performance.

Islamic Finance

Islamic finance is a market worth over £ 1 trillion and UK banks are keen to break into this marketplace.

Sharia finance is derived from the religious text of the Koran. It follows three basic rules:

·         Devout Muslims must not be involved with markets that are considered sinful, such as gambling, alcohol, tobacco, arms, cinema, pornography or anything to do with pig meat.

·         They must avoid taking risks, such as investing in hedge funds and spread betting

·         It bans the payment of interest. In other words you are not allowed to create money by money. This rule makes it hard to use Western banking products such as loans, mortgages and savings accounts.

Trading and investing for profit is permitted, but on the basis of partnership, in which the risk and profit are shared between two parties. This means that if you put money into accounts in Islamic  banks you do not earn interest but you earn a profit share in the activities of the bank. If you want a loan to buy a car you are not given a loan, the bank buys the car for you at an agreed price.

Buying a house has often been a major problem so one way to achieve this is for the Bank to buy the property and lease it back over a 25 year period, without charging interest and then selling it at an agreed price to the occupier.

You would think that as Sharia banks could not invest in risky loans that they might have escaped the financial crisis, but you have to remember that they did invest, as described above, in property and so they were not immune, but due to their main geographical market areas they were much better off than Western banks.

Western banks are increasingly taking an interest in this market. Citigroup, HSBC, Lloyds, TSB, RBS, Barclays, Bank of Ireland, Standard Life and UBS are all now offering Sharia compliant products.

The Bank of London and the Middle East and the Islamic Bank of Britain offer some of the best rates of return available, but you do not earn interest. Instead they act as your ‘agent’ in making Sharia-compliant investments; they will monitor the deposit to ensure the agreed profit rate is met.

The Islamic Bank of Britain has had a significant impact on the UK and European financial industry.  The Bank was authorised by the UK’s Financial Services Authority in 2004 and is the UK’s only wholly Shariah-compliant retail bank.  The Bank has continued to maintain this position and still remains the only Islamic retail bank in the UK and Europe.  It is considered a pioneer of retail Islamic banking and currently offers the largest range of Shariah-compliant retail financial products to the UK consumer.

The UK was the first member of the EU to authorise Islamic Banks, as a result, according to the CityUK Islamic Finance 2011 report, there are 22 banks in the UK offering Islamic finance products.  This figure exceeds that of any other Western country. There were five Sukuk (Islamic bond) listings at the London Stock Exchange (LSE) in 2010 and one in early 2011.  This brings the aggregate total at the LSE to 31 listings worth $19 billion. Islamic funds managed in the UK have combined assets of $300 million.

Islamic banking is now well established in the UK and is worth considering even if you are not a Muslim but are interested in a more ethical method of banking.