The Banks aren’t lending !

Small Business Finance – Small Business Borrowing

Now it’s does not take an eminent scientist to work out that there is a problem in the banking sector.

It should also not surprise you that this problem is not going away anytime soon, if you want my prophecy than you can expect a further 5 years of challenging times for many small business owners forget about normality, those days are over.

There are loads of reasons why banks will not be rushing to lend to UK firms any time soon, but here a couple:-

  • The largest economy in the world is – bankrupt and they are not able to print any more ‘funny money’.
  • The Asian manufacturers have the benefit of a massive and cheap labour market and seem to want to make things, we do not, HSBC and Barclays have stated intentions to Asia and not the UK.
  • The Bank of England seems to not understand what to do next and of course the politicians don’t know, none of them have ever run a business and seem to only take advice from those that don’t actually need the money.
  • The domestic Mortgage Market is not coming back to any kind of normality for some time (could be 3 – 5 years). Fuel prices are not going down anytime soon. This has major implications if you are in the market for home improvements or a local builder.
  • With the addition of Pension changes in the coming 18 months you staff costs are only going one way.
  • With this in mind, waiting for the banks to come and start lending would be foolish to say the least.

Increased levels of lending is just not going to happen anytime soon. Fact!

So instead of waiting for someone on a ‘white charger to come down the high street ready to whisk you away to  business finance paradise’ you might want to make some alternative plans.

I keep hearing all of the whining voices from Small Business owners and fools within some of the trade organisations all talking about the problems of bank lending to small firms, and how they will be lobbying parliament in order to get change. Yeah right, make a sentence from the following words;

hell it snow will first in

It’s interesting that the similar model in the US of A produced very little in the way of increased lending.  Business Week Story and there is more from the Herald Scotland . I don’t care what you think, and what is offered by the Treasury lending to small firms is not going to increase in the same way as Mortgage Lending (the most secure kind of lending) is not increasing.

Update – Lord Heseltine this produced a report for the UK Treasury which outlines some further things that NEED to be done which at present are not being done (can you see that Knight on the white charger now moving away from you at the end of the high street).

 Now, have you got that!

Why these business organisations don’t put their energy into other solutions I don’t know, this post will be well syndicated so watch out  for comments.
Small firms want solutions to problems, not someone who is going to rant to some backbench MP from the middle of nowhere, just because no one else will listen, and then giving a speech in the house, and chatting to some Bank CEO’s. It’s not going to change anything.

So this is my spin on it. Lets call it ‘smiffy’s partial guide to business success in the real world’.

Lets assume you cannot get any more bank funding for expansion, lets assume that you will not get any real support from Central or Local Government, lets assume that the level of Red Tape does not subside anytime soon. All reasonable assumptions for the coming 5 years.

The following list of options is nowhere near complete, but print it out, chat it over with one of your managers or significant other, someone who does not know your business may be more helpful. Take one point and see where it fits, if it does not move on to the next. One will have an impact.

But please, please don’t wait for a third party to come and save you. It’s not going to happen, as a side issue all of these things have worked for businesses we have worked with in the last 5 years or so.

  • Increase your prices, add some more value, get rid of the ‘scum’ customers (cheaper, sooner types).
  •  Stop supplying on 30 days credit, reduce it to 10 or better nil. Stop factoring (they make more than you on the deal – often the charges end up in the region of Credit Card rates) by definition if your business is any good you should be able to get COD or even charge in advance. Yup some customers will leave you, others will gripe. But if we look at all other businesses in the world that are big and successful (Walmart, Tesco, Amazon) you can’t leave without paying.
  • Don’t tell me you are not able to do it, you are delusional. Get help, find a way.
  • Get your suppliers to fund some of your costs by extending the time they allow you to pay. Remember they only have to finance the’ cost’ of the item and not more, the same as you. The scary thing is that a lot of businesses don’t actually know what cost is. Do you?

Come to an arrangement, a partnership.

  • Reduce stock levels (instant cash). Get rid of extra stock on Ebay or wherever, just get rid of it.
  • Consider Share Options to your staff to raise funds, a bond issue to local investors most of them will be grateful of deposit interest of 7%.
  • Consider Crowd Funding to raise capital.
  • Consider ‘factory finance’ for that new machine.
  • Sale and Leaseback of premises.
  • Refinance the Directors home (god forbid you have to put your own money in eh!)
  • Make sure you are using all of the skills available. (yup those unhelpful, boring and miserable members of staff all have brilliant careers outside of the job, they manage Football Teams, School Associations, write Computer Software, most of the internet runs on Linux, in the main coded by part timers who have proper jobs). You will be surprised what your staff do in their own time but you do need to ask. One of our Rugby coaches held a mundane cleaning job out of choice but at the weekends coached a team of young players and provided fitness coaching to first team members.
  • Look at some new markets where you have not made sales yet, just because you sell oven cleaner does not mean it can’t be used to clean something else.
  • Get your salesteam together for a Coffee (off site) find out what they are doing that is not working.
  • Collaborate with them on a book about your business or your services, become the go to guys in your field. You can do this in an afternoon, take a chapter each.
  • Stop doing what is not working.
  • Stop visiting customers that are not buying, use a telesales to get old customers spending.
  • Market to old customers using all available mediums.
  • Sell something from your Website – great site, why can’t I buy what you have to sell.
  • Sell something from a related business website.
  • Start focusing on a proper (automated) marketing campaign that actually sells stuff. Stop any ‘brand advertising’ and no a new logo will not help you marketing.

One of the big problems I see with many of the Marketing experts, so many Financial Experts and so many pundits commenting on Small Business issues is that many know nothing about anything apart from a blinkered specific, (like Social Media or Web Design) often they have no idea how other stuff happens.

You need to stop listening to them and look around your business, get creative.

As a firm we are always happy to work on ‘share of income’ for all of our work. Yeah it’s scary sometimes, just like your business.

As I keep saying ‘there is gold in them there hills’. As an aside, I was having lunch last week with a young fella (28) who has already BANKED £1 million net profit in 3 years (with less than 4 part time staff), the last 3 years have been really easy for everyone eh! Exactly, but there are a lot of successes. Don’t tell me it’s not possible because it is, and it has never been easier.

Now if you are running a High Street store or Plumbers merchant or whatever, and your customer service standards are poor, and you have not got in place a decent marketing model, and are selling stuff that no one really wants, with out-dated pricing and business processes. You really do deserve to be struggling, and you can moan about the Banks not bailing you out, and they won’t for the above reasons.

There was a great line from one business expert not so long ago, he was offering business help to SME’s (well so he said)  when we started to talk to him about his own business experience we found he had struggled, poor health caused by stress, caused by his poor business management. He of course blamed everyone, the local council, bank lending, government policy, parking. So he let the businesses go under, and set up as ‘small business guru’ just the sort of bloke you want advising you, as always chose your counsel wisely.

Now if you want to adapt and grow there is massive opportunity out there, honestly.

On a pre final comment I attended a couple of the free seminars put on by Barclays earlier this year (2012) and they explained what they were lending for and why, it was interesting to see some of the stats they produced and even a fool could see that many small firms could not pull together a business plan to attract anything which is one issue, but more damning the is  the fact that over 85% of small business finance applications were declined as being :-

1. Not adding up mathematically.

2. Not adding up risk wise.

3. Were asking for help with Cashflow within a flawed business model

4. We asking for long term capital (that’s what shareholders are for).

Like it or not that”s the way it is.

I started with the Banks and will end with them, they don’t care about you never have and you should start to take control of your own business future without them. It is possible honestly every day there are more options coming over the horizon just grab one and check to see if it fits.

If you business is looking to raise finance or wants to consider the options or just want to chat through the options please feel free to get in touch. I am also happy to talk to businesses that are struggling to move forward or avoid being forced to close.


Richard Smith

01323 660058 – the views contained in this post are those of Richard Smith and not (now that should placate my business partner).

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