Business loans. An overview of the market and what you need to know

This year I have been receiving more and more enquiries for the straightforward business lending of term and flexible repayment loans. All welcome of course although not perhaps the most interesting string to my bow because it can feel like an endless succession or form filling for a simple yes/no

The skill is knowing which are the most likely suitable lenders and a lot of time can be wasted engaging those that are never going to deliver. Many lenders will give out the impression they are open to all business at remarkably low rates and will also send out promotional material indicating that a virtual interest free loan is available at the click of a button. Ive had clients being “promised” six figure sums at a rate just a shade above base with absolutely no security or guarantees required. However much that lender was keen to boost its credentials, its not going to happen

A further difficulty is that a simple search on the net will throw up countless options until you look a little more closely. Read the small print and you will find many “lenders” are actually “brokers”. Avoid because who would want to trust anyone who wilfully misrepresents their offering?

Many clients have high expectations because of the liberal lending of the CBILS lending and especially the somewhat ridiculous Bouncebacks. These have been reincarnated as RLS lending but the scope and rules are much stricter with a much narrower band of lenders who at least one has admitted to me that they are not intending to lend through the scheme at all or they want so many strings attached, its impossible to get past first base.

Having said that, I do know a couple of options for those interested and the rates are capped to be relatively reasonable which perhaps cannot be said of the fintechs. Here rates have been climbing very steadily and in some cases are quite eye watering. This isn’t just a reflection of the base rate rises but more perhaps on the lack of options in the market.

Also the underwriting can be baffling. A well established genuinely likeable and well run client of mine has just filed strong accounts and is expanding fast but we simply cannot get anyone to bite for a relatively small amount. I know for certain that a few years back, they would have been falling over each other for this piece of business

You may well be asking about the major banks and their lending? Good question but you can anticipate the answer. Lets just say its difficult

I have completed a number of facilities this year so the picture isn’t entirely bleak and I am always happy to advise. Advice which will considerably save you or your clients valuable time and resources

Small business late payments commissioner. Useless?

As ever the Times is strong with its reporting on these issues but sadly this story is behind a paywall but on the other hand, its not complex

Simply put the Government appointed Small Business Late payment commissioner has received £120k in salary with extensive pension benefits whilst having only collected a total of £800k in late payments for small businesses

Is this lack of effort or incompetence or simply that the role is doomed to be ineffective?

Without knowing what procedures and powers are in place, Its difficult to ascertain but the fact remains that forcing large customers to pay more promptly is a herculean task. Corporations are well versed in putting up barriers and there is frequently little a supplier can actually do.

Even so, the numbers are damning and clearly raises the question as to whether there is any requirement for this role at all

Wilko. Here we go again

Isn’t it always the way?

Wilkos directors have been accused of paying themselves excessive dividends (£3m during a year when they lost £31m) whilst draining the staff pension fund. All within the approval of the auditors of course

I highlighted before Wilkos cynical behaviour towards staff during the Covid crisis and a picture is being formed of a pretty vile management team. Yet again the losers are the staff and creditors.

Wilko was a seriously strong brand which failed to cope with competition and a changing market. The management lacked the imagination and the will to invest of rivals such as B&M and a pattern emerges

Businesses that treat their staff poorly and simply exist to line greedy directors pockets are usually poorly run businesses with dismal directors. Clearly if you care about your enterprise and the longer term you treat staff with respect and invest in the structure as well as put your mind to developing your markets

Buying a business? Be prepared

Frequently I receive leads from those seeking finance to enable the purchase of a business. I like these leads because there are number of different angles which can make the process interesting. The downside is that the completion rate is very low but rather that, than a blank canvass.

People buying businesses can sometimes lack experience, necessary skills and be rather naive. When dealing with someone currently running a business, the process and understanding is usually at a different level and the process much smoother, simply because requirements from both sides are understood. I do take into account that many new potential business owners are simply finding their way but they also need to be aware this isn’t a game and for the above reasons, lenders are wary of who they lend to. Clients often require a lot of guidance which is understandable, but I am also aware that any training should really be chargeable time. This week a client seeking finance was trying to drag me into framing the negotiation of the basics of the deal. The response was curt.

If you are intending to buy a business and are not confident to conduct your own negotiations, then you shouldn’t be buying a business.

One of the biggest problems is the assumption with buyers is that the numbers are enough. That isn’t the case and nor should it be. MBIs (management buy ins) have a high failure rate so the quality of the people involved is vital

When i’m approached the initial contact is vital. Personality and experience is a key factor. Also you cannot simply separate out the numbers from the understanding of the business and at least a basic understanding is essential

Too frequently i’m thrown a bundle of spreadsheets and on questioning its clear that the potential buyer has barely looked at even the basic detail. I have some horrific examples

Why is this important?

Because the the lender engages with my client, they will expect to meet a confident applicant who has the facts at their fingertips and not someone shuffling papers to find last years profitability

If the applicant struggles with this then they should reconsider or at least employ additional assistance. My suggestion is that they involve an accountant but even then, preparation should be a given

Patisserie Valerie. The charges

Unsurprisingly, the finance team at Patisserie Valerie have been charged with fraud and on what we know from the details of the case, it’s hard to envisage anything other than a conviction.

Some will claim that this is a “victimless crime” but huge sums were involved and their fraud ensured that lenders and unsecured creditors were seriously misled. In the case of many unsecured creditors, that can be extremely damaging in more than just financial terms.

The auditors were Grant Thornton and they have become a familiar name in these cases. They have been fined for a “serious lack of competence”. Some might suggest that there was rather more to it than that and they have escaped lightly but I wouldn’t comment.

Increased scrutiny of the insolvency industry

“Insolvency reforms” are not one of those subjects that triggers excited interest and its not too surprising that the latest developments are buried away in the Times and barely reported anywhere else

Up to now, individual insolvency practitioners can be held liable for malpractice but not their firms. A slightly strange anomaly perhaps given that firms are responsible in both the legal and audit sectors. These changes bring this in line

Certain firms have a reputation for misleading clients into options which are more geared towards fee generation than the interest of the creditors (I am putting this politely) and i’ve been aware of some pretty appalling cases in recent times.

I can imagine that these reforms may be welcomed through gritted teeth by some