National Loan Guarantee Scheme to help businesses access credit

In his Autumn Statement, the Chancellor of the Exchequer has further outlined his plans to help small businesses to access much-needed funding with the 'credit easing' scheme, which will be facilitated by the launch of a new National Loan Guarantee Scheme.

In response to increasingly desperate pleas from the small business community, and with the big banks missing the small business lending targets they agreed with the Government under Project Merlin, George Osborne first announced proposals for a scheme of credit easing at the Conservative Party Conference, where he outlined the highlighted the problem he is seeking to solve;

"Because the banks are damaged, they won't lend at the current low rates. It's like putting your foot on the accelerator but, because the transmission mechanism is not working properly, the car wheels won't respond."

"Everyone knows Britain's small firms are struggling to get credit and banks are weak. So as part of my determination to get the economy moving I have set the Treasury to work on ways to inject money directly into parts of the economy that need it such as small businesses. It's known as credit easing.

Credit Easing implemented through new National Loan Guarantee Scheme

Essentially, credit easing is a mechanism for the Treasury to pump credit directly into small businesses, and the Chancellor
used his Autumn Statement speech to outline further how it will be implemented.

Credit easing will be achieved with the launch of a National Loan Guarantee Scheme. It will use the low interest rates that the Government can borrow at, to lower the rates that small businesses pay for their business loans.

Or as George Osborne put it, "We’re using the credibility we’ve earned in the international markets to help our domestic economy."

Businesses with turnover of up to £50 million eligible

The Government has set a ceiling of £40 billion for the credit easing programme, with half of this available in the first two years. It will be paid for by a £40 billion reduction in the Asset Purchase Facility which the previous government gave the Bank of England to buy business loans, but only a small proportion of which was ever used.

Businesses with a turnover of up to £50 million will be eligible to apply for new business loans and overdrafts under the National Loan Guarantee Scheme. The Government expects it will lower the interest rates charged to businesses by 1%.

Together with the Bank of England, they have devised a mechanism to allocate funding to different banks based on how much they increase both net and gross lending to small businesses. While a clear audit trail - based on the experience of the European Investment Bank’s Loans for SMEs programme in the UK - will ensure the banks comply.

Youth Contract to offer businesses subsidies to employ young people

The Deputy Prime Minister Nick Clegg has revealed the Government is to address the high levels of unemployment among young people with the launch of the Youth Contract.

The scheme will begin in April 2012 and will be Government-supported to the tune of £1 billion.

Under the Youth Contract firms will be able to claim a wage subsidy worth £2,275 for each new employee between the ages of 18 and 24 they take on. Government funding will be made available for up to 160,000 new jobs.

Youth Contract to provide subsidies for 160,000 new jobs

In addition to subsidising 160,000 new jobs, the Youth Contract will provide a further 250,000 work experience placements. Over a three-year period, the Youth Contract scheme aims to create 410,000 new work places for 18 to 24 year olds.

Youth Contract scheme highlights include:

·         The Youth Contract is open to all businesses interested in employing 18 to 24 year olds.

·         250,000 young people to be offered work experience placements of up to eight weeks. These will be available to every unemployed 18 to 24-year-old who wants one, providing they have been looking for work for at least three months.

·         A £50 million programme for the 25,000 most disadvantaged 16 and 17-year-old NEETS (those not in employment, education or training) to get them onto an apprenticeship or into work.

·         At least 20,000 additional incentive payments for firms in England to provide apprenticeships to 16-24-year-olds.

·         Extra help for young people at Job Centres, including time with advisers and a careers interview.

Speaking on the launch of the Youth Contract, Nick Clegg said, “The aim of the Youth Contract is to get every unemployed young person earning or learning again before long term damage is done.

“This is a £1 billion package and what’s different about it is gets young people into proper, lasting jobs in the private sector.

Banks missing Project Merlin small business lending targets

New figures released by the Bank of England show the big banks are missing the small business lending targets they agreed with the Government under "Project Merlin".

One of the agreements the Government struck with the big banks under the accord known as Project Merlin, was that they would provide £190 billion of credit to businesses in 2011, with £76 billion of the total to be lent to small and medium-sizes enterprises (SMEs).

Nine months into the agreement figures show the major banks have so far lent £56 billion to small businesses. This means they remain some £1 billion short of target, a similar shortfall to the lending figures announced after 6 months of Project Merlin.

However, the banks are well ahead of their target for the amount of loans made available to large businesses, with some £158 billion loaned to date against the £143 billion goal at the three-quarter stage.

Banks must lend more to SMEs

The Treasury welcomed the figures for lending to large businesses but warned the banks they needed to do more for small businesses. A Treasury spokesperson saying, "It's encouraging that today's provisional results show that UK banks have loaned over £157 billion pounds so far this year, which is 11% above target.

"While banks have lent over 10 percent more to SMEs compared with this point last year, they must do more to ensure that they meet their Merlin commitments for the full year."

The amount of credit available to small businesses has become a major concern for the Government. Small businesses say that it is very difficult to get business loans on reasonable terms and at competitive rates of interest, and that the lack of credit is stifling their efforts to expand. But the banks insist that loans are available to small businesses, it's just that demand for loans is low because of the economic climate.

BofE figures confirm tight credit conditions for small businesses

The Bank of England's September 'Summary of Business Conditions' report seemed to come down on the side of small businesses when it gave its analysis of the credit conditions for small businesses;

"Small businesses and start-ups still found it difficult to gain access to credit, and where loans were available, fees remained elevated and the applications process was often drawn out. Concerns about the withdrawal of overdraft facilities at short notice had led some small firms to run permanent sizable cash balances, inhibiting investment. And contacts in sectors such as retail, which faced weak demand conditions, also often struggled to secure finance."

Small businesses lending

The Budget expands the Section 7(a) program to enable $12.5 billion in guaranteed loan volume in 2005, a more than 25-percent increase from 2004. This will provide financing to entrepreneurs who could not obtain loans without a Government guarantee. Altogether, the 2005 Budget requests $129 million in administrative expenses to support $24 billion in guaranteed lending and equity investments for the Section 7(a) General Business Loan, Section 504 Certified Development Company Guaranteed Loan, and Small Business Investment Company (SBIC) programs. To continue to effectively address the financing needs of small businesses, SBA will: 1) assess the impact and effectiveness of its capital access programs; 2) administer programs more efficiently; and

3) target and expand access to credit. Assess Program Impact and Effectiveness. 

The Program Assessment Rating Tool (PART) revealed that although SBA’s technical assistance programs provide similar education, training, and information services to over four million entrepreneurs annually, standard measures to compare the effectiveness of each program are lacking. To address this finding, SBA is developing methods to measure the impact of these programs in helping entrepreneurs to start, sustain, and grow their businesses. PART findings also revealed that the structural flaws in the SBIC program are based upon a number of factors: 1) the Federal Government’s profit share is not commensurate with its investments; 2) SBICs do not have incentives to repay capital expeditiously, extending the government’s risk exposure; and 3) the methodology for calculating the program’s cost should be reexamined to more accurately capture the risk of subsidizing venture capital investments. The 2005 Budget takes necessary steps to address these issues.

The 2005 Budget also includes a legislative proposal to improve the performance of SBA’s venture capital program, the SBIC program. The proposal would increase the government’s share of profits, increase borrower fees, encourage SBICs to repay principal faster, and minimize the Government’s risk exposure. With estimated losses to the taxpayer of about $2 billion on the Federal Government’s outstanding guarantees of about $5 billion, these changes are necessary to make the program fiscally sound. 

business failures, business services, risk strategies

New data from Experian shows that a regional divide has opened up, with the proportion of business failures in the North significantly higher than the number recorded in the South.

The latest report from the information services company revealed that insolvency rates were highest in the North West (0.14% of businesses), North East (0.12%) and Yorkshire (0.11%), whereas the numbers were significantly lower in the South - with the percentage of businesses going under in the South East, Greater London and the South West at 0.07 or 0.08%.

Compared to October, all regions recorded a lower number of business failures in November, although just over 1,700 firms still went under during the month.

Of the five biggest industry sectors – business services, building/construction, property, IT and leisure/hotels – property was the only one that saw its improving insolvency rate improve - from 0.07 per cent in November 2010 to 0.06 per cent November 2011. It was also the sector to see the biggest improvement from October when the rate was 0.08 per cent.

Although smaller businesses (those with between 3 and 10 employees) have generally managed to maintain lower rates of insolvencies over the past year, they experienced the biggest deterioration in financial strength between November 2010 (an average of 81.80) and November 2011 (an average of 81.04).

Max Firth, from Experian, commented: “The latest insolvency index highlights that some businesses continue to need to assess the risk strategies they have in place very carefully. They need first to understand the risks they are exposed to and then protect themselves from debt that could be detrimental to their business on a regular ongoing basis.”

businesses subsidies to employ young people

The Deputy Prime Minister Nick Clegg has revealed the Government is to address the high levels of unemployment among young people with the launch of the Youth Contract.

The scheme will begin in April 2012 and will be Government-supported to the tune of £1 billion.

Under the Youth Contract firms will be able to claim a wage subsidy worth £2,275 for each new employee between the ages of 18 and 24 they take on. Government funding will be made available for up to 160,000 new jobs.

Youth Contract to provide subsidies for 160,000 new jobs

In addition to subsidising 160,000 new jobs, the Youth Contract will provide a further 250,000 work experience placements. Over a three-year period, the Youth Contract scheme aims to create 410,000 new work places for 18 to 24 year olds.

Youth Contract scheme highlights include:

·         The Youth Contract is open to all businesses interested in employing 18 to 24 year olds.

·         250,000 young people to be offered work experience placements of up to eight weeks. These will be available to every unemployed 18 to 24-year-old who wants one, providing they have been looking for work for at least three months.

·         A £50 million programme for the 25,000 most disadvantaged 16 and 17-year-old NEETS (those not in employment, education or training) to get them onto an apprenticeship or into work.

·         At least 20,000 additional incentive payments for firms in England to provide apprenticeships to 16-24-year-olds.

·         Extra help for young people at Job Centres, including time with advisers and a careers interview.

Speaking on the launch of the Youth Contract, Nick Clegg said, “The aim of the Youth Contract is to get every unemployed young person earning or learning again before long term damage is done.

“This is a £1 billion package and what’s different about it is gets young people into proper, lasting jobs in the private sector.

“But it’s a contract, a two-way street: if you sign up for the job, there’ll be no signing on for the dole. You have to stick with it.”

Small business breakfast

A breakfast panel event, hosted by Intuit, covering 'start-up success in an economic crisis', is taking place on Tuesday 25th October.

Despite the efforts of successive Governments, and the steady increase in the number of start-ups, one third of new businesses don't survive past their third year.

Panel topics and speakers

This panel session, being held at the Hub Centre Pavilion in London, will discuss the unique challenges for small businesses with insights from successful entrepreneurs and business experts, covering topics including:

·         What role should the Government have in supporting small business? Is the current Government doing enough?

·         Market pressures - How can small businesses best overcome the competing pressures of restricted access to funds, falling demand and rising inflation?

·         Confidence - How to small businesses feel about the current economic climate, and how do they feel about their future prospects?

Members of the panel will share their experiences with the audience. Speakers include:

·         Raam Thakrar, founder and CEO of Touchnote

·         Robert Welch, managing director of smallcarBIGCITY

·         Marcus Waley-Cohen, founder of FireFly

·         Chris Dodson, managing director of Concept Cupboard

·         Charles Davis, managing economist at CEBR (the Centre for Economics and Business Research)

·         Sally Revell, head of marketing for Intuit UK who will share unreleased findings from recent research

The event will be moderated by BBC journalist Michael Millar.

North-West businesses the worst late payment culprits

Data released by global information company, Experian, reveals some interesting regional late payment trends, with businesses in the North West of the country taking twice as long to settle outstanding invoices as those in the South West.

Larger businesses the worst late payers

The latest data shows that the number of days businesses take to pay their bills has increased across the board over the the past quarter, as the economy enters another 'testing' phase.

For all sizes of company, from one man bands to multinationals, the average business settles invoice an incredible 26.13 days beyond the agreed terms. This is a marked increase compared to 22.65 days during Quarter 3 2010.

The larger the business, the later payments tend to be made. The average 1-2 man band settles invoices 20.56 days beyond terms, whereas businesses with over 500 employees take almost 35 days.

Big regional differences in payment times

The late payment problem, already one of the biggest threats to small business survival, is much worse in some regions of the country than others.

By far the worst region for late payment is the North West, which records an average 36.72 days to settle an invoice beyond the original terms. This region also has the second highest insolvency rate in the UK.

By comparison, businesses in the South West take a mere 18.18 days to pay, with the South East and Northern Ireland following close behind - on 20.83 and 20.05 respectively.

London is the second latest paying region, at 28.69 days beyond terms.

Simpler reporting for smaller businesses could be on the cards

The Government has published a discussion paper on proposals to simplify the financial and company reporting requirements of micro businesses.

The paper, 'Simpler Reporting for Smaller Businesses’, was published last week by the Department for Business, Innovation and Skills (BIS) and the Financial Reporting Council (FRC). It sets out ideas to reduce the amount of reporting micro-entities would be required to undertake.

It is thought that up to 5 million businesses could save a considerably sum as a result of simplifying their accounting obligations, as their accountancy fees would drop significantly.

The proposals include easing the current reporting requirements so that the smallest companies would only need to file a simplified Trading Statement (in place of the current P&L account), a simplified Statement of Position and a simplified Annual Return.

The paper also proposes developing an integrated software package to help small businesses prepare financial information. This could allow managers to gain a better understanding of the trends in their businesses’ performance and help them plan for the future.

According to the Competitiveness Council, a 'micro-entity' is defined as a company with a turnover of less than €500,000 (£440,000), with net assets of less than €250,000 (£220,000) and employing fewer than 10 people.

This definition covers around 60% of all limited companies registered at Companies House, and 3.5m unincorporated business, so these changes could have quite a big impact on the administrative burden carried by the nation's enterprises.

Edward Davey, the minister responsible for Corporate Governance, said:

“Reducing unnecessary regulatory burdens on the smallest businesses can give them the freedom to innovate and grow - which ultimately benefits the entire economy and is absolutely central to the Coalition’s vision for Britain. A new deregulation from EU rules targeted at micro businesses means we now have a chance to deliver these benefits.

“The financial reporting regime must also serve the users of the information published by companies – whether they are customers, banks or government agencies. So we look forward to receiving responses to our proposals from a broad range of interested parties in the coming months”.

The paper has been released as an evidence-gathering exercise, and to stimulate discussion. Written responses to the proposals must be provided by the end of October 2011.

Small Business.

Accountant urges small businesses to watch out for incorrect HMRC P35 fines  

An accountancy firm has warned the nation's four million SMEs to be wary of a large batch of inaccurate fines which have been issued by HMRC over the past few months in relation to the employer annual returns which have been submitted late.

North West accountants Mitchell Charles worth made the warning following the recent case of Hok Ltd v HMR&C, which saw the firm’s £400 fine for failing to file a P35 reduced to £100, because the penalty was not sent out until four months after the error was made.

A number of industry commentators have gone so far as to suggest that HMRC have deliberately delayed informing taxpayers that their P35's are late, as a tax-raising exercise.

Joanne Nieman, payroll manager at the firm, said a raft of companies have been hit by similar fines over the last month.

She is now urging any firm worried or concerned about fines related to the late filing of Employers Annual Return (P35) forms to contact a payroll specialist immediately.

“The fine structure has seen businesses being charged per month after missing the tax return deadline. But critically many of these firms weren’t informed until several months down the line. It is a ludicrous scenario because many businesses would have remedied the situation much earlier had they been made aware.”

"Many firms have taken the matter to tribunals and have been successful in getting these fines waived through formal appeals.

“Many new cases came to light in recent weeks when the HMRC issued penalty notices for late P35s. This led accountants and lawyers to warn company owners to check their post.”

Penalty Notice system is flawed

Mrs Nieman said HMRC designed the timetable for issuing penalties to allow a reasonable period for employers to give notice if they have no return to make.

She added: “There are real problems with this penalty notice system. A number of first tier tax tribunal judges have criticised HMRC for not issuing penalties earlier. We would advise anyone who feels a fine issued against them is unfair or excessive to seek help and challenge the appeal.”

Interestingly, Mitchell Charlesworth says that a number of its clients have received penalties for non-submission of their P35 forms, despite submitting 'nil returns' via the HMRC website.

The firm said that even though submission receipts were emailed to firms, nil return submissions had not been recorded.

Many other small business accountants we are aware of have reported similar issues with their own clients over the past few weeks.