The best business loans and how to get them
Friday, 25 November 2011 07:25
By Kate Saines
Whether you are thinking of starting up a business, or need a loan to fund ventures in a current enterprise, you might be a little nervous about borrowing at the moment.
And who could blame you in this unsteady economic environment?
But if you are keen to expand or need a financial boost there might not be a better time to take out a loan.
Because not only are the big banks being urged to get their act together when it comes to lending, but research suggests that many small businesses who think they will not be eligible for a loan are in fact just suffering from a lack of confidence. The funding, it would seem, is out there for the right businesses.
There have been significant developments in the world of businesses loans this year.
Project Merlin
In February, the government launched Project Merlin, a scheme under which the UK’s biggest banks have been tasked with lending £190 billion to businesses in 2011. Of this figure, £76 billion must be lent to small companies.
You may be more familiar with the agreement for its initiatives encouraging the banks to be more transparent about the salary details of its top earners and to cut the big bonuses.
But for businesses in the UK, the lending aspect of the agreement will have been welcome news. The banks were being closely watched by the Treasury to ensure targets were met.
But met they were not.
In August it emerged the banks had fallen short of their lending targets to small companies. At that time, John Walker, the national chairman of the Federation of Small Businesses said a clear plan for growth was needed to allow people to set up in business and for firms to have the confidence to grow and invest.
He added: “In order to do that, businesses will need an injection of capital which most of them will only be able to get from the banks.”
Now, in November, there seems to be some discrepancy over whether the banks’ lending targets are making a real difference.
On Monday the government claimed the banks were actually achieving the goals. In a speech to the Confederation of British Industry (CBI) Prime Minister David Cameron revealed £157 billion had been lent in the first three quarters of the year.
He said this was 11 per cent more than expected and that lending to small and medium businesses was ten per cent up on last year.
“I know that credit for small and medium enterprises (SMEs) is still tight,” he said, “and that even among businesses that are offered credit there is anxiety about whether this is the right time to expand and invest.”
He went on to say that by encouraging the banks to create the Business Growth Fund and setting up the Regional Growth Fund £1.4 billion was going to businesses in the UK.
And he said the Chancellor of the Exchequer would be revealing more about plans for the new credit easing scheme which should help to reduce the cost of loans for small and medium businesses.
However, the Treasury Select Committee reported yesterday (Thursday) that as part of its inquiry into the Independent Commission on Banking some small businesses were still not benefiting.
After speaking to bosses at RBS, HSBC, Santander and Lloyds TSB, Andrew Tyrie, chairman of the committee, said: “On the one hand all of the banks who appeared before us today suggested they will meet their Project Merlin lending targets and at a reasonable price of loans.
“On the other hand, SMEs are insisting they cannot get access – at any price – to some of the loans they need to grow and survive.”
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So what is available for businesses to tap into at the moment?
HSBC recently extended the period under which companies can benefit from the Employer Business Loan service, which aims to support UK businesses creating new jobs.
It offers a one per cent discount on the loan interest rate they pay for each person the firm has hired in the last six months up to a maximum of three per cent.
Alternatively customers who employ someone in the following six months will receive ten per cent of the interest in cashback for each person hired up to a maximum of 30 per cent.
Interest rates on the loan start at 7.9 per cent AIR (annual interest rate) and come with a £100 arrangement fee.
It’s available to businesses with a turnover of up to £2million who need to borrow between £1,000 and £25,000 and who hold a HSBC Business Current Account.
The bank also launched the International Business Overdraft, which offers a reduce rate to UK businesses who trade, or plan to trade, overseas.
And it’s also just launched a competition in which four UK businesses will receive a £50,000 grant each to help boost their plans for growth.
Jacques-Emmanuel Blanchet, head of commercial banking UK at HSBC, said: “The Employer Business Loan and International Business Overdraft rewards those who are preparing for economic growth and future success and fits well with HSBC’s strategy of helping UK businesses throughout the economic cycle.”
It’s not just firms with high ambitions for overseas trade being supported.
Royal Bank of Scotland (RBS) and NatWest recently launched a £5million Community Business Loan initiative to support businesses with a social or community focus.
Applications are being encouraged from any firms which are financially sustainable and deliver a positive impact to either society, the environment or both.
Peter Ibbeston, small business chairman for NatWest and RBS said these firms played an important role in boosting the UK’s economy.
He said: “As the economy struggles, demand is rising for this type of finance. More businesses [are] being set up with a social or community focus.
“These businesses, including charities, social enterprises, community interest companies and co-operatives, may be small but represent a fast growing sector which should be given every opportunity to play a role in recovery.”
RBS announced in early November it was to increase lending to small businesses by 15 per cent. It said it would cut up front fees, lower lending rates and end early repayment penalties to make its loans more attractive.
Barclays and Santander have also announced initiatives this year which underpin their commitment to boosting small businesses in the UK.
But statistics would suggest part of the reason many firms are not confident enough to borrow money is because they fear they will be turned down.
Barclays ran a series of Lending Clinics to encourage more small businesses to think about borrowing in a bid to inject them with some confidence.
The bank’s research, released in September, found only 15 per cent of businesses had applied for borrowing in the last year.
It revealed 75 per cent of businesses actually succeeded in getting a loan despite only 42 per cent thinking they would get one before applying.
Antony Jenkins, chief executive of Barclays Retail and Business Banking, said the economy was dependent on small businesses having the confidence to invest and grow if it was to be revitalised.
He added: “Confidence will only begin to be restored when businesses are equipped with the belief to make informed decisions about their future.”
No matter what sort of business you have, or what kind of loan you need, there are many options out there for you.
Business loans will usually only be available to you if you already hold a business account with the bank from which you want to borrow.
Negotiation skills
According to independent financial research organisation, Defaqto, the ability to take out a loan depends on how creditworthy your company is and your negotiation skills.
It also said you may, if you are a new business, be eligible for the Small Firms Loan Guarantee Scheme, where the government acts as a guarantor.
It’s not just loans which can help boost your businesses finances. Overdrafts are obviously another option and come in particularly handy if you need cash instantly. There are penalties for unauthorised overdrafts and you should make sure you check out the interest rate first.
People ages between 18 and 30 who are starting a business can apply for a Prince’s Trust Loan. Not only does this provide start-up finance for successful candidates but it also provides support with business plans, marketing and generally getting the business off the ground.
On the other end of the scale, if you are already established, you can also get financial support for expansion through venture capital.
This is where you sell a proportion of the business in return for a lump sum of cash which you can then invest in the business or a specific project. This should not be entered into without professional advice.
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