Posted on 28/08/2013, 00:00
A recent announcement from Mark Carney, the Governor of the Bank of England that the Bank will not consider raising interest rates until the jobless rate has fallen to 7% or below has been met with some positive responses by business organisations and the government.
The British Chambers of Commerce, said “This will give businesses a much-needed confidence boost when looking to invest…..” and the CBI echoed this saying “Greater interest rate certainty and clarity from the Bank should provide a shot in the arm for business….”. The shift in emphasis was also welcomed by the Chancellor, George Osborne, who said “…….I think it means for a business, thinking about expanding and taking out a loan to expand – they’re going to have greater certainty that interest rates are going to stay low for longer”.
However, if the news gives businesses greater confidence and certainty, it also comes at a time when bank lending is still falling on an annual basis. Towards the end of July the Treasury announced that, with effect from next January, major UK banks will publish details of the lending in 10,000 postcode areas across the country. The hope is that publishing local trends in bank lending will improve the overall lending landscape, help lenders identify gaps in the market and boost credit to small businesses but this news has been met with some scepticism.
Although data from the British Bankers Association shows that there has been an increase in net business lending between May and June this year, net business lending is still falling on an annual basis. As a result, many SMEs will continue to see bank loan applications fall at the first hurdle.’ And despite efforts from government to boost bank lending, the outlook is not likely to change quickly. Therefore it is absolutely vital that small businesses prepare properly when trying to raise funds.
At Pro-actions we work with and help small businesses across the South East and London and we frequently see businesses who have previously applied for finance only to be turned-down because their business case just didn’t stand up! This is a waste of time and effort and a real frustration for the businesses and for the banks. And, despite everything we hear to the contrary, banks are keen to lend.
When trying to raise funds to create a new business or to grow or acquire an existing business owners need to fully understand what’s needed to be successful, what the application should cover and which key financial information the bank will be looking for. They need to understand what criteria the bank uses to judge the merits of a loan application, what a successful business should be measuring on an on-going basis and also what other options are available for raising finance.
Although this won’t guarantee success it will significantly increase the chances of success!
Written by Mike Wenham
Director, Pro-actions UK
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