The Doing Business Together initiative T
he government is attempting to tackle the UK’s gaping budget deficit through sweeping spending cuts but, with banks still not providing affordable lending, small businesses also need to improve their financial management in the years ahead. The Forum of Private Business has been instrumental in creating the principles behind the new Doing Business Together initiative, which is attempting to bridge the divide between banks and business owners, and is leading the campaign to increase competition in financial markets, including allowing innovative models such as Funding Circle and Funding Store to enter the market. Formed by 30 leading groups and including representatives from the Department for Business Innovation and Skills (BIS), the Doing Business Together scheme aims to help SMEs manage their own businesses and finances better in order to improve their ability to access the credit they require.
Based on the principle of ensuring that the relationship between businesses and their finance and trade credit providers is one of profitable partnership through a shared commitment to honesty and transparency, whether it is related to bank’s lending decisions or businesses presenting financial statements to lenders, the project has recently published its operating principles. The group believes that small business systems of financial reporting are more likely to produce relevant and reliable financial information if: management communicates sound ethical values within the business and exercises sufficient oversight of activities; sufficient competent human and other resources are
Forum of Private Business
used; the systems are designed to achieve the business’s specific financial reporting objectives; risks of not meeting objectives are identified and mitigated by suitable policies and procedures; the performance of systems is monitored and corrected or improved as necessary. In addition, information from providers of finance about process and decision making is appropriate if it: explains what finance may be sought and on what terms; identifies factors that determine credit ratings or lending decisions; sets out the general processes and timetable; refers to appropriate regulations/industry codes where these are followed; communicates, in respect of an application or facility, the specific processes and timetable applied and the reasons for decisions. The forum has repeatedly warned that, unless the flow of finance improves, small firms will be unable to create the necessary jobs for the private sector to drive strong economic resurgence. Further, many SMEs will be unable to continue at all. While recognising the international banking implications of Basel III, a new update to the Basel Accords that could, among other measures, see banks forced to retain more capital, the forum believes there have rarely been better opportunities for new financial services organisations unaffected by the toxic financial assets to enter the market. The not-for-profit small business support
and lobby group has submitted proposals to an Office of Fair Trading (OFT) consultation reviewing barriers to entry, expansion and exit into the financial services industry. In particular, it has called for real alternatives to traditional financial institutions and temporary incentives to allow new business models to
flourish – including
those less reliant on automated risk systems, which is a major reason credit has dried up. The forum’s finance director business
support solution is helping its members to access the levels of affordable finance they need. Through Funding Circle, an innovative online funding marketplace providing low-cost finance by allowing investors to lend directly, small businesses can effectively sidestep the banks.
Firms using the system stand to save as
much as 25%, compared to high street bank rates, on sums of between £5,000 to £50,000. This is achieved by cutting out the middle man. Launched in August, the service has already lent £1m to businesses across the UK. For private lenders, investing in a business will likely prove to be more worthwhile than keeping money in a bank account earning low rates of interest. The organisation has also joined forces with
Fundingstore.com, which helps entrepreneurs access the widest range of funding opportunities possible. In short, it matches those businesses seeking funding with the most appropriate funders and advisors. The website covers all types of business funding, including business loans, bank funding, asset finance, leasing, equity and other sources including public sector finance. Importantly, it is free to use for all types of business. For more details on how the forum’s finance director solution is helping small firms’ finance needs and further information about the organisation, call +44 (0) 845 612 6266 or click
www.fpb.org.
Phil McCabe, FPB, tel: +44 (0) 1565 626019, e-mail:
phil.mccabe@
fpb.org
First signs of SME investment in plant and business equipment
or the first time since the recession began small business investment in new plant machinery and business equipment grew in the last quarter, according to new figures published by the Finance & Leasing Association (FLA). The value of plant machinery and business equipment financed by FLA members increased by approximately 15% in the third quarter of the year, compared to the
F 94 November/December 2010
same period last year. In total asset finance companies funded £4.6bn of investment in the three months to September 2010. Small businesses are increasingly looking to asset finance to fund their investment, as shown by the results of qualitative research on small businesses commissioned by the FLA.
Detailed interviews with a sample of small businesses across a range of sectors
Business Money
found that they are increasingly turning to asset finance to help them to invest without needing to find finance up-front. The research shows that businesses value loans that are secured on the asset being financed, which are easy and inexpensive to obtain. Lease finance for new equipment obtained from equipment suppliers, known as vendor finance, was a popular option.
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