Head of external affairs for Lloyds TSB Commercial Finance, Stephen Pegge, has spoken to thisismoney.co.uk explaining what businesses can do to increase their chances of accessing finance.

According to Pegge, businesses should be focusing on cash. Businesses that have had loan applications turned down should focus on what lenders want to see including, managing their cashflow carefully, producing relevant forecasts and sharing information with lenders.

This article appeared on thisismoney.co.uk under the title “How to get a bank to give your business money”.

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Companies are being urged to plan how they release “recession era” accounts due by September in order to avoid unnecessary credit rating downgrades.

Businesses with December 31 year ends – one of the two most popular during the year – have to file their accounts to Companies House within nine months and many will show declining profits or losses.

Accountants and credit insurers have said that if the accounts do not reflect more positive current trading then companies should consider releasing more up-to-date trading information.

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Lloyds Banking Group is trialling sophisticated software to validate the monthly financial records of business borrowers.

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In response to the survey, Forum of Private Business Chief Executive Phil Orford echoes the CreditPal message that “by ensuring they approach their banks armed with proper management accounts and financial projections, entrepreneurs can significantly boost their borrowing prospects”.

Managing cash flow and Government red tape and lack of lending facilities were highlighted as some of the main challenges faced by today’s businesses in the annual IFA Business Barometer Survey.

The Survey, by the Institute of Financial Accountants (IFA), which will be released on 24th June, canvassed the opinions of IFA members. The IFA currently has over 10,000 members.

Questions focused on the plight of small businesses in post-recession UK. The challenges businesses claim they are facing include:

George Derbyshire from National Federation of Enterprise Agencies said:

“There is no question that a thriving small business sector will be central to economic recovery, and the IFA and its members are uniquely well-placed to test the temperature of the sector. The findings of the Barometer Survey provides an agenda not only for the Government, but for all of us who work to support small businesses.”

IFA Members were asked what their experience was of the willingness of banks to lend. Only 2.6% said they were ‘very willing’. Whereas almost 37% said they were unwilling and a resounding 25% claimed to be ‘very unwilling’.

The general feeling is that banks are too risk averse. They are not flexible and SMEs are finding it almost impossible to obtain credit. When banks do lend it is always accompanied by strict personal guarantees, excessive charges, bigger deposits, and shorter loan periods.

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The BBA has revealed six binding commitments from the UK’s banks to support the small business sector, a situation which businesses can help themselves with by using CreditPal to support applications for credit and finance.

Currently the high street banks are lending a total of £720bn to all UK businesses. A further £100bn is already committed to businesses of all types and is available to be used at the discretion of each business.

 We expect and are ready to increase lending over and above these amounts as the economy picks up. Banks will play their part in financing growth in UK. The fact that approval rates for applications received by banks have remained high despite the general deterioration in credit quality caused by the recession demonstrates this clearly.

The high street banks understand the concern of smaller businesses. They are lending £54bn to such businesses.  New lending of £500m is taking place each month to smaller businesses. Approval rates remain high here as well.

Overall, small and medium sized enterprises (SMEs) should be confident banks will lend to viable business plans with a demonstrated ability to repay. We have been working closely with the Department for Business, Innovation and Skills to develop a number of commitments in areas that they, and the groups that represent businesses, would consider most helpful. As a result the high street banks will adopt the following principles when dealing with SMEs.

Commitment to SMEs

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Experian has advised small and medium sized enterprises (SME) in the UK about the importance of actively monitoring and managing their own business credit scores to put them in the best possible position to secure credit, business loans, tenders or business services.

According to the company, using commercial credit scores enables businesses to manage the risks of not getting paid, losing a vital supplier or becoming a victim of fraud.

An independent survey of over 500 UK SMEs revealed that over half recognise the importance of checking a customer or supplier’s commercial credit score, but only 28% think it is important to check their own commercial credit score.

Simon Streat, Experian’s head of SME for UK and Ireland, said: “Our analysis has found that 56% of SMEs know it is important to use credit scoring to help them manage some of the financial risks associated with extending credit or a business loan to new customers. However, most do not appreciate the importance of knowing their own commercial credit score or the value they will gain by actively monitoring and managing it.”

He continued: “These are tough times for SMEs and the message is very clear. They need to check their credit reports regularly, especially before making an application for credit or a business loan, to ensure that their reports accurately reflect their circumstances.”

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Xavier Denecker, managing director of Coface in the UK and Ireland, says business could see trade credit insurance premiums increase as well as cover reduce if their customers suffer weak trading in future. In order to combat this, businesses should be using CreditPal.

Businesses will see trade credit insurance premiums increase as well as cover reduce if their customers suffer weak trading in future, one leading insurer has said. But contrary to claims by the Business Department, the credit insurance industry will survive the recession, Xavier Denecker, managing director of Coface in the UK and Ireland, has insisted.

Coface, which has 1,500 business customers in the UK, has begun a two-month transition to new contract terms with its customers as part of a shift in its business model. The insurer has said premiums will remain higher than those seen before the recession because past premiums did not accurately reflect the risk that businesses would fail to pay their bills.

It added that businesses would in future be expected to be far more transparent about their current trading performance in return for trade credit insurance cover for their suppliers. As part of this process, Coface will begin giving its customers its credit score for the businesses they are supplying to explain more clearly decisions to restrict cover and price policies.

Mr Denecker said these scores would be accurate 95pc of the time but he encouraged businesses to challenge Coface if they had evidence that trading was better or worse than the insurer understood. Successful challenges would result in a move in the premium and cover within seven days in most cases, he said, which would allow businesses to extend credit to customers that suddenly began ordering more stock.

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Christopher Poll, chairman of Future Route, the provider of CreditPal, explains how small businesses can avoid toxic debts as they gear up for economic recovery.

Most people find safety in numbers because they give a sense of security and comfort – but only if the numbers are other humans doing the same thing.

This view does not always apply when businessmen are faced with the numbers contained in a set of accounts. Then the opposite happens. Fear and trepidation can result in delegation of these numbers to a third party, usually an external accountant.

Not only does this remove management from direct interchange with the lifeblood of their business, but it is also costly and takes time, exacerbated by the fact that many accountants are ill equipped to offer the frequent accounting services required by businesses today.

The current credit crisis has forced big changes both on small and medium-sized enterprises (SMEs) and on how the finance and credit industry, as well as supply chain managers, lend and provide finance and credit.

If SMEs are to survive, and then start growing out of recession, owners and managers must be on top of their own numbers – and of those with whom they do business.

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While trade credit insurers made record claims payouts totalling £320m in 2009, one of the industry leaders, Coface, has just launched an initiative with CreditPal to improve risk assessment.

The figure is a 95 per cent increase in payouts made in 2008, which totalled £164m. The increase was attributed to the ongoing effects of the global recession and the liquidity crisis facing UK businesses.

Trade credit insurers dealt with 22,791 claims in 2009. The highest amount of claims payments (£125m) came in the third quarter, before a drop to just under £75m in the final quarter.

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In response to new data showing improved export growth for the UK’s small manaufacturers, Professor Russel Griggs, chairman of the CBI’s SME Council, warns that access to credit remains a headache for some firms.

Demand for goods made by the UK’s small and medium-sized manufacturers is improving at home and abroad, and production has stabilised, according to the CBI. But the business group warned that cost pressures have intensified and access to credit remains a headache for some smaller firms.

Of the 402 manufacturing firms surveyed for the CBI’s quarterly SME Trends Survey, 36% reported a rise in the volume of total orders in the three months to April, and 26% a fall. The resulting balance of +10% is the first significant growth since January 2008 (+10%).

A better-than-expected rise in export orders, thanks to the relative weakness of Sterling, accounted for much of the improvement. A third of firms (33%) said export order volumes increased, 15% said they declined, giving a balance of +18%. That is the strongest balance since July 1995 (+21%).

The volume of domestic orders is also stabilising. 31% of companies reported a rise, and 28% a fall, giving a rounded balance of +2%. Manufacturing production remained steady during the quarter with a balance of +3% seeing output grow.

However, firms are seeing profit margins squeezed because of rising commodity and raw material prices, with a balance of +21% of firms reporting a rise in average unit costs. That was the fastest growth in costs since January 2009 (+27%), and compared with a balance of +9% in the January quarter.
Meanwhile average domestic prices stabilised (a balance of +2%) after five consecutive quarters of deflation. But, output prices are expected to pick up over the next three months (+11%).

Access to credit continues to prove a challenge for some firms. 12% cite credit or finance constraints as likely to limit export orders, and 7% say they are likely to act as a brake on output. Both figures remain above their long-run averages.

Russel Griggs, Chairman of the CBI’s SME Council, said:

“The UK’s smaller manufacturers are finally reaping the benefits of all their hard work as well as a relatively weak currency. Exports are growing steadily, domestic demand and production are stabilising, and firms are feeling more upbeat about prospects.

“With demand expected to grow in the coming months, manufacturers are thinking about taking on extra staff over the next three months.

“However, firms are experiencing a sharp rise in raw material costs which is squeezing profit margins. But they do expect to recoup some of this by raising prices over the next quarter. It is also still a concern that access to credit remains a headache for some firms.”

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