When is a target not a target?
by James Constant
The latest figures for the government’s demand to get the banks lending to SMEs again are on the face of it a rare bit of sunshine for the beleaguered business sector but hold on what’s that we see in the small print?
The minister for business and enterprise has disclosed that the quarterly ‘stretch’ target” for SME credit in the three months to March was £17.2bn, and with a reported £16.8bn having been achieved it looks on face value that banks are finally opening their wallets again.
But what’s this….The published annual target for SME lending is £76bn which by any calculation implies a £19bn quarterly goal. A full 10% more than that ‘stretch’ target!! So a ‘stretch’ target for banks is less than their ‘base’ target… nice work if you can get it.
Bizarrely the banks claim that this additional sum only needs to be made available if SME demand is there. Well I don’t know about you but I am frequently hearing of the difficulties of the SME fraternity in just getting to see a bank manager let alone getting a positive decision on lending what may be trivial amounts to the bank (let’s not go into bonuses issue here!) but are absolute life lines for the businesses themselves.
So it appears yet again only we as SMEs can help ourselves, so make that appointment with the bank manager, make that ‘demand materialise’ and whilst you’re at it impress them with the cost conscious way you run your business by sorting your energy costs with uSwitch for Business
As RBS would say “Make it Happen”
Computer says ‘no’ – why small business bank lending needs the human touch
Chris Gorman, spokesperson for the Forum of Private Business discusses how Project Merlin, an agreement between banks and the government over transparency and lending, has affected small businesses and how a personalised approach could help boost industry.
I know empathising with bankers isn’t a particularly popular pastime at the moment, but in a way, I can appreciate the difficult position they’ve found themselves in over the last couple of years.
Ever since the credit crunch and resulting bail-outs, they’ve been pulled in two different directions - urged to put a stop to the reckless credit conditions of the boom years on the one hand, but urged to increase lending to small businesses on the other.
As we all know, the banks appear to have prioritised the former at the expense of the latter, so it’s probably not surprising that initial figures recently showed that the banks are on course to miss their lending targets set out under the ‘Project Merlin’ agreement.
Through Project Merlin, the banks agreed to lend £190 billion to businesses in 2011, including £19 billion in the first three months of the year. But by their own admission, they provided just £16.8 billion of finance in the first quarter.
Those involved in Project Merlin say this has come about because the demand for lending among small businesses has declined. While the Forum's own research does support this idea to some extent, we believe it’s more of an effect than a cause. Business owners aren’t applying for bank lending not because they don’t need it, but because they don’t think they’ll get it, based on their recent experiences of their companies and other firms being turned down.
Something of a vicious circle has been created and it will take some firm and concerted action to put a stop to it.
However, here at the Forum, we believe much of the problem comes down to the automated ‘tick box’ systems the banks use to asses small businesses’ creditworthiness and make lending decisions.
A sizeable portion of our members are mature businesspeople who are way past normal retirement age, having been with the Forum since it was formed in the 1970s. As a result, they remember how in the past, lending decisions were made by genuinely local bank managers, who took the time to get to know their customers and had the power to decide which businesses were likely to prove risky borrowers, and which were a safe bet for the bank to lend to.
These managers were experienced, knowledgeable professionals who understood how businesses worked and were trusted in their judgements by their employers.
However, with judgement, experience and knowledge comes salary expectations, and it’s almost always cheaper to centralise and automate a process. As a result, over the years the local bank managers have been replaced with computers at head office, and their successors all too often reduced to glorified salespeople, with little or no say over lending applications.
This might not have been too much of a problem back in the boom years, when the computers were set to ‘lend’, but now the banks are much more risk-averse, many creditworthy small businesses aren’t getting the finance they need because they don’t match some pre-determined algorithm in a piece of software somewhere. Anyone who has ever collected car insurance quotes will appreciate how haphazard these systems can be, with seemingly irrelevant factors having a baffling and illogical influence on quotes.
What we at the Forum have been saying for the past three years is that banks need to abandon the ‘computer says no’ mentality and instead, return to case-by-case, bespoke lending decisions made by experienced and empowered local bank managers. Managers who know their customers and can make more informed, accurate lending decisions based on a business’s particular circumstances.
This process still happens at some lesser-known banks, and they don’t seem to have any problems making a living out of it. One example is Stafford Railway Building Society in the Midlands, which only lends to local customers and requires all lending decisions to be personally reviewed by one of two experienced senior managers. Sweedish bank Handelsbanken also appears to be doing very well for itself by exploiting the gap in the market for personalised small business lending, and helped several Forum members after they were let down by the main banks.
So clearly it is economically viable to make lending decisions on a case-by-case basis. Indeed automating the small business lending process probably often leads to the banks losing money, as just as a computer at head office often fails to spot the things which should make a bank attractive to lend to, it probably also misses the warning signs which make it a risky borrower too.
The re-localisation of bank lending is one of many measures we’re proposing through our new campaign, Get Britain Trading. If you agree with us, please visit the site and pledge your support.
Small business to be hit by ‘crippling’ energy bills
by Maya Robert
Small businesses could be hit with expected energy bills after being undercharged by their supplier, says Consumer Focus.
Consumer Direct, the Consumer Focus helpline, has received 1,848 complaints from small businesses which had received backdated bills, often totalling thousands of pounds.
It today warned the problem is likely to be much wider spread.
The issue rises from the huge energy bills accrued by small businesses – sometimes in excess of £10, 000- meaning that small mistakes can add up to large sums.
Energy suppliers can issue backdated bills for up to six years of gas and electricity use and demand instant repayment, despite often being responsible for the error.
By contrast, domestic customers can only receive backdated bills for up to a year.
Consumer Focus has asked energy suppliers to only receive backdated bills for one year where the supplier has been at fault and that energy suppliers set a realistic timescale for repayment.
Audrey Gallacher, Head of Energy at Consumer Focus, said:
“Small businesses need all the help they can get in these difficult times if they are to help drive the economic growth we need.
“Getting a bill for thousands of pounds out of the blue is a nightmare scenario for any small business, especially in these difficult times.
“With suppliers able to go back six years, supplier mistakes can add up to big debts that could potentially cripple some firms.
“It’s important for businesses to ensure they are paying the right amount, but energy suppliers shouldn’t treat small businesses in the same way as they would multi-national corporations.
“The back-billing code of practice would protect firms from large unexpected bills, and give suppliers the incentive to get billing right first time, every time.”
Consumer Focus’ top five tips to help small businesses avoid being hit with an unforeseen energy bill:
- When you move into new premises, register with a supplier straight away – Check thoroughly to see if there is more than one meter for each type of energy, read the meters, and make sure your supplier has your correct name and address.
- Give regular meter readings - Energy suppliers must read the meter at least every two years but registering correct meter readings over the phone every time you get a bill will help avoid debts piling up.
- If you think you’re paying too little, contact your supplier as soon as possible –Fixing the problem early on will avoid building up a big debt that’s harder to pay off.
- If you do get hit with a big bill, call your supplier straight away – Ask them to explain what went wrong. Even though suppliers can currently demand repayment of the whole debt in one go, try to negotiate repayments you can manage.
- Suppliers do get it wrong – If you believe this is the case and can’t resolve the situation with your supplier, take your case to the Energy Ombudsman. You can also contact the Ombudsman if you took all reasonable steps to ensure your bills were correct and think that your supplier has been negligible in allowing debt to build-up.
Would you hire a public sector worker?
Today’s stats from uSwitch have shown that private sector employers are more than just dubious about hiring someone from a public sector background.
55% think that employees of the public sector have had it too easy and ‘unrealistic expectations of the workplace’.
Despite an encouraging 72% of small business expecting to grow, just 2% would seek a public sector worker and only 11% think a public sector worker, put simply, could do the job better that one from a private business.
It will serve as more bad news for a work force that is already facing stringent spending cuts and widespread redundancy.
It also puts paid to the government’s expectation that private industry will be able or willing accommodate the new levels of unemployed public sector workers.
So, the question remains… Would you employ a public sector worker? And if not, why not? Vote on our poll or leave a comment.
Happy New Year! But PS, it’s going to cost you, thanks to the VAT rise.
We have been reassured that we are out of recession, we have been advised that the economy is stabilising, some of our major retailers, airlines and other large companies have reported growth in revenue, however, just as things start to seem like they are getting back to ‘normal’, the government hits us with a VAT (Value Added Tax) rise from 17.5% to 20%.
Of course, it shouldn’t come as a complete shock, as we were made aware of the plans when the budget was drawn up last year, but the Prime Minister David Cameron had said post-election, that a VAT rise was not part of their plans. Of all the promises that the government has made since the elections, why is this one of the ones that it has to break, especially when not everyone in the cabinet is in agreement?
The increase took effect at midnight last night, so the opportunity to purchase last minute goods and stock pile at the lower rate has now passed, but how is it going to affect other outgoings such as petrol, gas, electricity and other services?
Well, the good news is that residential energy bills are only subject to a 5% VAT charge, which has not been reported to change, however, the traditional 17.5% VAT which is applied to business energy bills will rise to the new 20%. So how does this affect the average bill?
The average SME (small to medium enterprise) bill may rise from £2,863.72 to £2,924.65 – an increase of just over £60 a year, based on an average consumption of 25,969 kwh per annum.* This figure may seem small to some, however, some business energy users, even in the SME market, use more than double this amount, so their bills will see a more significant increase.
Over the last couple of months of 2010 oil prices started to rise and this directly affected gas and electricity prices in the commercial energy market. Almost all suppliers have seen the price per kwh of both fuels rise by up to 20% in some regions, meaning that bills are already on the rise. The new VAT figure will only cause further strain on businesses, and the cold snap isn’t over yet.
So, the advice from uswitchforbusiness.com is to ensure you are on the correct tariff to suit your business energy needs and where you can, switch your energy provider to ensure that you are getting the best prices in your region and for your usage. Not everyone will be able to change suppliers immediately – business energy users are subject to energy contracts that need to be in the renewal period before new prices, tariffs or suppliers can be discussed, but in the meantime, it is a good idea to get out your energy bills and your contract, check the end date, and be ready to check prices and secure a new contract up to four months in advance of your contract end date. Some businesses, may not be in contracts at all, and can be paying up to 50% more per kwh for energy. This is where the VAT rise will have an even larger impact.
So to save money, or for advice at any time during your contract, contact uSwitch for Business and discuss how you can reduce the impact of the VAT ad price rises on your energy bills.
*based on average kwh for 03/04 profile customers taken from Jan 2010 to Dec 2010. Price calculation based on an average of 9ppu and a standing charge of £25 per quarter.
VAT increase – the impact for small businesses
A recent report by uSwitch found that January 4th’s VAT increase to 20% could add as much as £158 onto household bills.
With the public facing increases in the cost of phone bills, food, fuel and other items it’s easy to forget that there are consequences for businesses too, and small businesses in particular.
Businesses face a choice between putting up their prices with the VAT rise and facing grumbles from customers, or keeping their prices the same and absorbing the VAT rise themselves. It’s a definite case of being stuck between a rock and a hard place.
There’s also the headache of the admin that comes with the rise.
A survey by Sage found that nearly one in five small businesses are not ready for the increase. The poll also found that:
- Just 68% of small businesses are anticipating the effect of the VAT increase
- 11% hadn’t thought about the impact of the increase
- 7% were concerned about their lack of preparation
So what do you need to do if you’re a retailer? Well, it goes without saying that you have to use the 20% rate from the 4th January 2011. You also need to clearly show your prices inclusive of VAT. You have up to 28 days (until 1st February 2011) to do this, and until you’ve done it, you can just let your customers know that an adjustment will be made at the point of sale. For more information on getting prepared for the VAT rise, there’s some very useful information on the BusinessLink website.
It’s worth remembering that while insurance is not subject to VAT, it is subject to Insurance Premium Tax (IPT), and that is increasing from 5% to 6% in January. When your renewal date comes around in 2011, you could see your premium go up, so always be sure to compare your business insurance to make sure you get the best price.
There’s no business like snow business
By Ellen de Vries
Did the recent snowfall take you by surprise or were you fully prepared and able to carry on business as usual? After last year’s snow and ice chaos many companies were well prepared for a repeat performance and had stocked up on sand and grit, made remote working possible and offered flexible hours. But even with this admirable foresight, for a small business if just one staff member is unable to travel it can still have a huge impact – especially if that employee has the key to the premises!
Disruptions to transport services and unusable, snow-bound roads have caused huge problems for the majority of businesses, both big and small, particularly those involving deliveries. Childcare has also been an issue for many, as thousands of nurseries and schools shut their doors and large numbers of adults have been forced to stay at home.
More snow is forecast so if you’re a business that relies on being open, talk to your employees now and ask if any of them could stay nearby or even on the premises for a night or two. Is there room for a sofabed in your staff room? If you’ve a kitchen on site, make sure the cupboards are well stocked - providing food and hot drinks will make staff feel cared for and more inclined to rally round.
According to The Centre for Economics and Business Research (CEBR) as many as 800 to 900 small businesses are under threat as a result of the cold snap. If you’re worried about the impact of recent snowfall on your business finances, consider contacting your bank now; Barclays is offering a financial support package to affected business banking customers. And remember, everyone is affected so customers and clients will be sympathetic.
Warming to the weather
Of course, not all businesses are suffering because of the snow – sales of sledges, thermal underwear and trapper hats are up! And, thanks to the internet, many businesses are perfectly able to work efficiently even if staff are stuck at home; meetings can be conducted using Skype and as long as security is not an issue, a system such as GoogleDocs can be used so that staff can share documents.
If your premises are open, you may be worried about the cost of keeping them warm over the next few weeks. Keep heating bills down by sealing windows, checking the position of your thermostat, keeping radiators clear and making sure the heating is off in unused rooms. And perhaps invest in a few trapper hats for your staff…
Should British Gas be switching small businesses with bad credit to prepayment meters?
The Financial Mail reported over the weekend that British Gas is considering rolling out prepayment energy meters to small firms that have poor credit records. Apparently, British Gas is currently running this as a trial and expects to install more meters within a year.
In our fragile economic climate, the last things that small businesses need are higher costs and less flexibility to switch supplier and secure the most competitive rates.
Energy can make up a significant percentage of a business’s operating costs and for many businesses having to pay upfront for all their energy could not only stifle their cash flow, but hinder their growth too.
The meters which are being installed are smart meters, which can switch between being a normal credit meter and a prepayment meter. It is unclear whether customers would be able to revert to a normal meter and tariff should they increase their credit rating. It’s also unclear what impact this would have if the business wanted to switch to a new supplier later on.
Implementing prepayment meters would be a regressive move, and could potentially punish small businesses in the long-term. While I recognise British Gas’s concerns regarding unpaid bills, surely they could deliver a short-term solution to remedy non-payment issues without inflicting long-term pain to businesses? Perhaps by allowing customers to switch between different payment methods?
The key thing for small businesses is to shop around, as all of the ‘Big Six’ have different criteria for taking on business customers and over the last few years the business energy industry has been gradually progressing towards a more competitive market.
Robbing Peter to pay Paul – how can small businesses create a financial balance?
The latest idea from Chris Huhne in his efforts to redistribute government revenue is to increase environmental levies and in turn, to potentially cut Income Tax for thousands of people, or reduce National Insurance payments.
This strategy of ‘robbing Peter to pay Paul’ ticks all the boxes in the bid to meet environmental targets, but will increase fuel tax which will affect motorists and travellers directly in the pocket. Indirectly, this reinforces the message to reduce air travel and to embrace public transport, which has obvious environmental benefits, however, for many business travellers and commuters, this continues to fan the flames of the ‘use less, pay less’ battle, which many businesses face on a daily basis.
There is always the option to compare flight and travel costs, and to shop around at the pump for the best fuel prices in the area, but there will be no escaping potential prices rises of up to 30p per litre if the proposals go ahead.
To survive this period of cost reduction whilst increasing productivity and overall revenue, it seems that businesses need to mirror the government’s moves to create their own financial balance. One way to do this is to fix prices where possible - if someone gave you the option to fix fuel prices at the pump two years ago, knowing what we know now, everyone would have jumped at the chance. However now another fuel rise is approaching and we have no choice but to accept it. So you pay more for travel, but where can you offset these extra costs and fix prices to save money? Business energy.
Looking at you business energy contract is one way to save money, and by fixing your rates now, you will protect yourself against inevitable price rises over the next couple of years. Contract lengths can vary from 1, 2, 3 or even 4 years, so there is an opportunity for every business to fix their prices for a period that suits them. The best way to do this is to use an energy broker such as uSwitch for Business. The broker team will advise you of the various contracts and rates available to suit your business energy needs from a wide range of suppliers, and will ensure that you are getting the best deal for your business. The advice is free and they can set up your new energy contract with the supplier of your choice. It is an easy way to save money, fix your prices and have peace of mind that you are not paying over the odds for an everyday product.
Getting bespoke quotes to suit your business needs, rather than off the shelf products is an excellent way to ensure you are only paying for what you need. uSwitch for Business can also help you find the best solutions for your communications, insurance and help with business factoring when it comes to invoicing.
Other approaches to creating a financial balance are: to compare and save on day-to-day business products such as stationery, monitors or software; speak to your product suppliers and ensure they are still giving you the most cost-effective solutions; revisit your marketing strategies – are they giving you a good return on your investment?
By reviewing your financial balance, you will not only potentially find revenue to reinvest, but you will be better prepared for any further impact from government balancing acts, of which I am sure there will be more!
Use less - spend less, or get a good deal for peace of mind?
We’’ve all heard or read the news recently about the ‘Great Energy Rip-off’ and the pressure on Ofgem, the energy industry regulators, to investigate energy prices from the suppliers. In addition to this, energy minister Chris Huhne has been known to talk of his ambition for us to use less energy, to reduce bills as prices rise.
Fine for those who openly ‘waste’ energy, pay higher bills as a result and can easily save by turning off 3 out of the 5 televisions in the house when no one is watching them, but what about small businesses who need to use large amounts of energy, either in manufacturing or for services such as hairdressing etc.? The idea of cutting down their bills by using less energy puts them in a no win situation. Sure, all businesses can assess their energy usage and become more efficient, but only to a point, after which they rely on getting a good deal for their energy usage without it impacting on their daily business output or performance.
With threats of energy prices rising as the government plans to cut carbon emissions, the best thing to do is to find the best deal at the time to suit your business energy needs.
The good news is that although the business energy market is not as closely regulated in the same way as the domestic industry, business suppliers purchase their energy differently, and can track wholesale rates more closely. This is why price changes are more frequent, so when you are in your renewal period looking to secure a new contract and you find a good deal, secure it. But how do you know you are getting the best deal to suit your business energy needs?
By sending your bill to uSwitch for Business, and giving us a few details about your company, our business advisors can understand your energy usage and quote you the rates from multiple energy suppliers, including household names such as British Gas, ScottishPower and npower. That way you can be sure you are getting the best deal available at that time to suit your individual energy usage, and to give you the peace of mind that you can continue to use the energy you need to use without worrying about paying over the odds, leaving the government to wrangle over the price wars.
- Government energy plans unveiled by Chris Huhne (telegraph.co.uk)
- Chris Huhne’s efficiency drive to turn wasteful houses green (guardian.co.uk)
- The draft Energy Bill: a five-minute summary
- 60% increase in business energy costs as average turnover falls by 6%
- Business week in brief: 11th May 2012
- Ed Miliband and the Queen talk energy
- Interview with Steve Fitzsimons of new business energy supplier, Hudson Energy
- Business week in brief: 4th May 2012
- The see saw of corporate profit
- Business week in brief: 27th April 2012
- EDF Energy’s Business Customer Commitments: four key pledges
- Businesses buck the trend when it comes to smaller energy suppliers