Businesses are having to pay more to borrow than last year

Banks, like RBS, have said that demand for borrowing has fallen as firms focus on paying back existing loans, however that directly contradicts the findings of this report.
As we reported last week, the government has set up a task force headed up by British Banking Association head Stephen Green, involving all major banks and key government departments to examine whether banks are making life too tough for SMEs, 
The ICAEW’s findings were published in its latest business confidence monitor, put together with Grant Thornton.
Michael Izza, the chief executive of ICAEW, said: “Before the recession, banks were lending to businesses they probably shouldn’t have been lending to and they were guilty of probably being rather exuberant in their lending.
James Winnister runs J-Tech Systems, a security and fire installation business.
He approached his bank looking for a small overdraft facility, as the business has a lot of money going in and out every month and it seemed a good idea to have a little bit of a buffer. He was turned down.
He has now left the bank and uses factor invoicing through another company.
“We’ve had to factor out some of our larger invoices, which is costing the company between £500 and £1,000 a month – money we really could do with keeping in the business,” he says.
“Personally, I think the government should be putting more pressure on the banks to lend money to small businesses. They’re the lifeblood of the economy.”
“[Now] banks are being a little more choosy about who they lend to. They’re also charging more money, they’re making sure that the lending they do make to businesses, they can make money on. They’ve been getting their balance sheets in order for the last year or so.”
As well as noting a rise in fees, such as those levied for arranging an overdraft, the ICAEW backed up the banks’ assertion about demand, saying many SMEs were concentrating on paying off debts and managing with the money they had.
Despite complaints from some businesses about the banks’ attitude to lending, the ICAEW survey found the percentage of SMEs saying access to capital is a challenge fell to 20%, from 30% at the end of 2009.
It added that businesses reporting late payment was a “considerably more stubborn problem” for them.
The report also found waning confidence among businesses, despite what it called a noticeable improvement in their financial health.
It suggests the economy, which is currently running at more than 4% below pre-recession levels, will slow later this year.
Factoring – an alternative
Leading company Bibby Financial Services are quoting a growth rate of 24 per cent in a year-on-year comparison.
The NACFB’s report said the biggest growth area of lending had come in “factor invoicing”.
Factoring is a very simple method of short term borrowing as long as you have strong sales: As you raise an invoice, you pass that invoice to a company who will pay you a percentage of that invoice immediately.
“If you take a figure of 90% – if you raise an invoice for £10,000, you’ll receive £9,000 immediately. You’ll receive the balance, or a percentage of the balance, once that invoice is actually settled by the company.”
But the cost of using factor invoicing can be high as shown by James Winnister.