Finance and Business Opportunities - January 2010

British companies challenged to develop more energy efficient lighting for homes
On 26 January 2010, the Department for Environment Food and Rural Affairs, jointly with the Technology Strategy Board, announced a £1.2m research fund which aims to help companies become market leaders in the best ultra energy-efficient lighting, while contributing to reduced energy consumption in our homes.

Businesses will be invited to compete for contracts through a Small Business Research Initiative (SBRI) competition, which will be run in two phases.  In the first phase, companies will be awarded up to £40,000 to carry out technical feasibility studies, lasting up to 3 months.  In the second phase, proposals with the most promising technologies will receive up to £450,000 to develop and evaluate prototypes or demonstration units, which will then be subjected to a vigorous 6-month field trial.

The Technology Strategy Board is a business-led executive non-departmental public body, established and funded by the government. Its role is to promote and support research into, and development and exploitation of, technology and innovation for the benefit of UK business, in order to increase economic growth and improve the quality of life.  It is sponsored by the Department of Business, Innovation and Skills (BIS).  Please visit: www.innovateuk.org 
For information about SBRI please visit: www.innovateuk.org/deliveringinnovation/smallbusinessresearchinitiative.ashx

The first phase of the competition opens on 22 February 2010 and the deadline for applications is 19 April 2010.
Further information about the competition, including technical criteria, will be available shortly on the competitions page of the Technology Strategy Board website at: www.innovateuk.org/competitions.ashx 
Source: http://nds.coi.gov.uk/content/detail.aspx?NewsAreaId=2&ReleaseID=410603&SubjectId=2
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Free Course to Help Smaller Firms Bid for Government Contracts
On 25 January 2010, a free online public procurement course, designed to help smaller firms bid for the £220 billion of public sector contracts awarded each year, was launched jointly by Small Business Minister Lord Davies and the Chief Secretary to the Treasury Liam Byrne.

The course, 'Winning the Contract', shows participants how to identify business opportunities to supply goods and services to the public sector, explains the public procurement process, and demonstrates how to submit tenders.  It has helpful hints and tips to guide and inform businesses on the bidding process, and where to find public sector contract opportunities.

'Winning the Contract' is a nationally available online training course which all businesses, regardless of size and sector, can access free of charge.  It is part of a series of joint initiatives by the Office of Government Commerce and Department for Business, Innovation and Skills aimed at making the procurement market clearer and simpler.

Businesses can register to access the 'Winning the Contract' course by clicking through to learndirect on the Business Link website at www.businesslink.gov.uk/procurement.  The course, developed by Government and hosted by learndirect, takes a maximum of 3 to 4 hours and can be taken section by section as time allows.
Source: BIS: Help for Smaller Firms to Bid for Government Contracts
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Real help for businesses now
Is your business getting the real help it needs?

On 19 January 2010, the Department for Business, Innovation and Skills announced the launch of "Real help for business now". The service promotes free business health checks with a Business Link adviser and outlines some of the areas where businesses can receive help and advice. It covers areas such as:

  • Managing cashflow
  • Cutting costs
  • Finance
  • Keeping staff on
  • Help with recruitment and skills

Source: Real help for businesses now
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Government moves to support UK Islamic finance industry
On 21 January 2010, HM Treasury announced that is has introduced measures in Parliament to support Islamic finance and the issuance of corporate sukuk within the UK.

The Financial Services and Markets Act 2000 Order 2010 will help to provide a level playing field for corporate sukuk within the UK. The Order provides clarity on the regulatory treatment of corporate sukuk, reducing the legal costs for these types of investments and removing unnecessary obstacles to their issuance.

Sukuk are a broad class of financial instruments designed to replicate the economic function of bonds, but with a structure which complies with Islamic principles.  Although there is an obvious appeal to the Muslim community, sukuk can be issued and bought by everyone.

Source: HM Treasury Press Release 21/04/2010
Further information on the consultation is at: www.hm-treasury.gov.uk/consult_sukuk.htm
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Credit card industry resists lending limits
The UK credit card industry has attempted to pour cold water over plans to curb lenders' activities.

Government proposals include stopping card firms changing interest rates on existing debts and ensuring the most expensive debts are paid off first.

But now a trade body, the UK Cards Association, has claimed that the changes would push more people into financial difficulty.

There are 30 million UK credit card customers holding 66 million cards.

The industry said that 62% of all UK adults had at least one credit card, but borrowing on these cards had been in "gentle decline" since 2005.         
Source: http://news.bbc.co.uk/1/hi/business/8467933.stm
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Free web-based technology for SMEs to analyse and produce monthly management accounts
Details of the latest research from the Forum of Private Business (FPB), commissioned by CreditPal, the free accounts analysis system for SMEs have been published. It was reported on 14 January 2010 that SMEs can now use free web-based technology to analyse and produce and analyse monthly management accounts. 

The results from the FPB research found that almost all of the SME respondents have improved their cash position through better controls. Typical controls implemented are:

  • 76 percent pursuing late payers
  • 67 percent placing tighter controls on ordering supplies
  • 67 percent by internal cost-cutting exercises
  • 25 percent deferring payments to HMRC under the Government's 'time to pay' scheme

Two-thirds of respondents now produce management accounts to improve business management. Just 15 percent said their accountants had been the main influence behind them producing management accounts. The downside to this is the cost which, averaging at £500 each time, is considerable.

As the instability of the economy continues and lending restricted, clear and thorough financial information is increasingly being demanded by lenders when assessing lending risk.

CreditPal's free management accounts analysis and financial information supply service offers SMEs a solution. It provides a free, speedy and in-depth analysis of an SME's entire management accounts saving UK businesses hundreds of pounds annually. The online service is certified to ISO27001 standards to provide the highest security standards, is approved by accountancy bodies the ICAEW and ACCA.

The FPB is calling for increased co-operation between banks and businesses and for lending decisions to be based on realistic assessments, of which management accounts can form part.

You can contact CreditPal via email at sales@creditpal-online.com or call them on +44 (0) 844 375 9090. Their website is at: www.creditpal-online.com.
Source: Forum of Private Business
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HM Treasury calls for more choice in business finance
Work to increase options for UK businesses in need of non-bank finance is the subject of a discussion document released by HM Treasury on 12 January 2010.  The document seeks views on the barriers to more diverse financing for firms with the intention to introduce proposals for reform later in the year. It calls for a more diverse funding market, where large and mid-size firms can go directly to markets or have options other than banks when they are looking for support, would clearly be an advantage to the UK economy, not just in economic slowdowns.

The Treasury announced its plans to publish a discussion paper on non-bank lending channels in December's Pre-Budget Report.  The document published on 12 January 2010 focuses on a range of issues relating to business finance including:

  • credit assessment and monitoring;
  • corporate transparency;
  • transparency in the pricing of bank loans
  • UK investor preferences;
  • non-bank loan markets and high yield bond markets.

The document attempts to identify barriers to the development of these alternative sources of finance. HM Treasury is seeking feedback from interested parties, particularly the investor and business communities.
Source: www.hm-treasury.gov.uk/fin_non_banking.htm
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A Virtual Office from as low as £150 a month
On 1 February 2010, the Institute of Directors (IoD) will be launching its new Virtual Office, providing members with a Pall Mall business address, professional telephone answering service and mail forwarding at a low monthly fee.

Hot Desking and the IoD's exclusive Platinum Office package will be launched in April 2010.
Further information: IoD Office Solutions
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Charges on Enterprise Finance Guarantee (EFG) loans to rise by a third
Almost 6,000 companies face paying higher interest charges on their Government-backed EFG loan from 1 January 2010 after an 11 month-long discount deal with the European Commission ends.  Durham University research has found that the 5,800 firms which have so far received their loans have typically been charged 1.8 per cent in arrangement fees and have been charged an average interest rate of 6.75 per cent.

The premium charged by the Government for its guarantee on EFG loans has rocketed by a third to 2 percent after a temporary exemption from EC state aid rules expired. The price rise affects the 5,800 existing loans drawn down by companies as well as more than 3,000 other loans already approved by the Department of Business, Innovation & Skills (BIS) who say that the temporarily discounted premium of 1.5 percent was offered at a time when there was a significant level of uncertainty about the likely cost of finance for small and medium enterprises. The premium was always intended to return to 2pc from January 2010 and this has not deterred enterprises from taking up EFG loans in 2009.

The Daily Telegraph revealed that banks have earned almost £6m in fees by charging small businesses inflated rates far above normal market rates to access the £1.3bn scheme. Official research found that companies that had drawn down their loans typically had to pay 1.8pc of the loan in "administration fees" and accept a 6.75 percent rate of interest even though base rate is only 0.5 percent. 

Small business groups such as the Federation of Small Businesses (FSB) have called for an investigation arguing that the Government should look at these charges and bring them in line with the charges imposed by the partially state-owned banks. Ironically, the government scheme is more expensive than a normal loan. The FSB would like the Government to set reasonability bands because at the end of the day, it is government money that is being lent.  The further increase in the Government's premium will add to the cost of the loans. The Chancellor recently extended the scheme until 2011, setting aside a further £500m in guarantees. 

Both RBS and Lloyds have pledged that small firms wanting to access the scheme will not be charged more than 1.5 per cent in fees in any one year. The state-backed banks have said fees above this level would be unfair.

Bizezia, the on-line publisher, has a free publication on EFG loans: visit www.bizezia.com for details or call 01444 884220.
Sources, various including Telegraph.co.uk
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£70 million boost for UK manufacturing
On 7 January 2010, Business Secretary Lord Mandelson announced that the first three state of the art manufacturing research centres funded under a new £70M Government investment will be based at Southampton, Loughborough and Brunel universities, to help UK businesses develop the technology products of the future and underpin manufacturing growth.

The three new Engineering and Physical Sciences Research Council (EPSRC) centres will focus research efforts in the fields of:

  • Photonics (the science and application of light using optical fibres to revolutionise the internet and telecommunications) at Southampton;
  • Regenerative Medicine (therapies to enable damaged, diseased or defective tissues to work normally again) at Loughborough; and
  • Liquid Metals (developing innovative technologies for the reuse and recycling of metal) at Brunel.

These three new centres are the first in a £70M investment EPSRC will make in this area over the next year, also attracting industry partners and investment.
Source: http://nds.coi.gov.uk/Content/Detail.aspx?ReleaseID=410169&NewsAreaID=2&ClientID=431
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Economic evaluation of the small firms loan guarantee (SFLG) scheme
On 5 January 2010, the Department for Business Innovation & Skills (BIS) published a summary of research into the small firms loan guarantee (SFLG) scheme. It aims to provide a comprehensive assessment of the wider economic impact of SFLG arising from supported businesses being able to access loans that they would otherwise not have received.

The SFLG was the government's primary debt finance instrument and was established in 1981.  SFLG seeks to address the market failure in the provision of debt finance by providing a Government guarantee to banks in cases where a business with a viable business plan is unable to raise finance because they cannot offer security for their debt and/ or lack a track record. This rationale still underpinned the SFLG at the time of the evaluation. The key characteristics of the scheme is the government guarantee (the proportion of the outstanding loan balance covered by the government in the event of loan default) and the government premium (paid by businesses).

Over the last decade, take up of the scheme has averaged around 4,500 loans per year, although there have been fluctuations between individual years. 

In January 2009, SFLG was replaced by the Enterprise Finance Guarantee (EFG), which opened the scheme to a wider number of businesses, with the specific objective to facilitate new bank lending in response to the Credit Crunch.

The specific rationale for assisting SMEs is the evidence that they are more likely to be affected by market failures that act as a barrier to accessing finance.   At a more strategic level, commitment to assisting viable SMEs to raise finance is underpinned by evidence that the ease of accessing finance is a key driver of productivity through its impact on investment, enterprise and innovation.  They also tend to make a high, and disproportionate, contribution to net job generation; that they are a major contributor to new innovation and technological development, and; they play an important part in the development of new markets. In addition, smaller businesses are also major players in the socio-economic system as agents in the regeneration of deprived areas, and employers of under-represented groups in the labour market. All these potential benefits are supported through SFLG by easing the flow of investment funds to smaller businesses that are credit constrained.

The key findings are:

  • The rationale for SFLG is still valid. There remains a need for supporting viable small businesses with a lack of security and/ or track record;
  • The scheme is well targeted with high levels of self-reported additionality;
  • SFLG has created a level playing field for credit constrained businesses allowing them to achieve performance levels on par to otherwise similar unconstrained businesses. There is no evidence that SFLG businesses are of a lower quality compared to similar businesses that are not credit constrained;
  • A conservative cost benefit analysis of SFLG covering the first two years benefits of loans obtained in 2006 show the overall benefits outweigh the cost to the economy in terms of GVA;
  • There are other economic benefits attributable to SFLG supported lending, particularly in terms of sales growth, exports and jobs. The scheme appears to be a particularly cost effective way of creating additional employment. Further benefits may also accrue in the future as supported businesses appear to be more orientated towards growth, and many are seeking to develop new products and services.

Holding business characteristics constant, SFLG businesses:

  • Are 6% more likely to export than similar non-borrowing businesses;
  • Are 17% more likely to use new technology, and 24% more likely to use "cutting edge technology" than similar borrowing firms;
  • Are equally as productive as similar borrowing and non borrowing businesses;
  • Grew at a similar rate to other businesses in terms of sales, but grew more quickly in terms of employment than businesses that did not borrow. At the sample mean, this equates to 1.45 additional jobs;
  • Furthermore, ethnic minorities-led businesses and those located in deprived areas are overrepresented in SFLG compared to similar businesses that borrow.

Benefit to the economy:

  • Even with conservative assumptions, SFLG is found to have a net benefit to the economy over the first two years of businesses receiving an SFLG loan. For every £1 spent, there is a return of £1.05 to the economy through additional economic output as measured by GVA;
  • There will be additional benefits lasting beyond the initial two year time period and so this assessment underestimates the potential benefits from the scheme.

For full details go to: SFLGS Information
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