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As recession looms, British business sends out lending SOS

Thu, 17th Nov 2022 16:58

Credit more costly, on tighter terms as banks weigh risks

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Some business owners using own money to bridge gaps

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Funding crunch may deliver new economic blow to Britain

LONDON, Nov 17 (Reuters) - As inflation rockets and recession looms, many British businesses are struggling to secure affordable bank finance, piling pressure on the embattled UK government as it unveiled a budget aimed at reviving the economy.

British fruit-grower Hall Hunter is one of thousands of businesses in Britain feeling the squeeze, forcing owner Harry Hall to consider the drastic step of lending to his own successful company to top up its expensive bank lending.

"I'm probably going to be the bank," said Hall, who can't secure a loan product from his bank to offset his high borrowing costs. He told Reuters he would likely inject some of his personal wealth into his business to insulate it from inflation rates of 11.1% and a recession that could last up to two years.

Banks are increasingly nervous about extending credit to small companies, according to data compiled by Reuters and interviews with lenders and business heads, as rising costs of debt, labour and raw materials put the business case of lending to such companies under unprecedented strain.

Lenders were their most negative since late 2019 about the outlook for the supply of credit to the smallest firms, with annual turnover of under 1 million pounds, a Bank of England (BoE) survey published last month showed.

This could spell trouble for new Prime Minister Rishi Sunak and finance minister Jeremy Hunt as they announced a new, austere financial blueprint on Thursday, seeking to stabilise the economy after their short-lived predecessors unleashed chaos in financial markets with plans for unfunded tax cuts.

Any crunch for Britain's small businesses, which often lack the scale to pass on cost rises to customers as easily as bigger rivals, could deliver a new economic body blow.

Such companies account for 48% of private sector employment and about 1.6 trillion pounds, or 36%, of turnover, according to the Federation of Small Businesses (FSB), citing government data that defines small firms as having up to 49 staff.

FSB Chair Martin McTague told Reuters he met Sunak and Hunt last Friday to demand fresh fiscal support for small businesses.

McTague said in a statement after the government's fiscal plans were laid out that he was disappointed, citing less generous research and development tax credits and tax changes he said represented "stealthy tax grabs" on small firms.

"While tackling inflation is essential, so are measures to create conditions for prosperity, growth and support enterprise. Today is a missed opportunity to avoid further economic slowdown," he said.

'MAKE OR BREAK' FOR ECONOMY

Banks are still lending, but the risks and higher relative costs associated with funding the smallest businesses, many of which may not survive, means they often have no choice but to turn them away, four senior banking industry sources said.

Stephen Pegge, head of commercial finance at bank lobby group UK Finance, pointed to evidence that small and medium enterprises (SMEs) more broadly were securing credit - banks lent 6.5 billion pounds to companies with less than 25 million pounds turnover in September, BoE data shows.

"Lending is definitely flowing," Pegge added. "But there's no question that small businesses now have less capacity to increase their borrowing because you've got a slowing economy."

Indeed small companies in Britain see their access to credit at its worst level since 2015, according to a quarterly survey by the FSB of 1,383 small business owners.

Forty-two percent of applications for funding in the third quarter failed, up from 39% in the second quarter of the year, the survey found, while one-in-five firms seeking finance were quoted loan offers at interest rates higher than 11%.

Many small companies have also yet to repay state-backed loans extended to prop them up during COVID lockdowns, making their credit profiles increasingly unattractive. Only 4.7 billion pounds from the 46 billion lent to small businesses under the "Bounce Back Loan" scheme had been fully repaid as of the latest July 31 data from the government.

"Business owners are having to look at alternative options, one of which is to dip into their own pockets," said Claire Burden, partner for advisory consulting at Evelyn Partners.

Others like Douglas Grant, CEO of Manx Financial Group, called for a permanent state-backed loan scheme to protect SMEs, saying this could act as the "fundamental difference between make or break for many companies and, in turn, our economy".

BANKS 'DON'T HAVE A CHOICE'

Naresh Aggarwal, associate director of policy at the Association of Corporate Treasurers, which represents business finance staff, said banks were taking a pragmatic approach to lending as the economy falters to avoid costly writedowns.

Loans are still being issued and firms in breach of covenants linked to their debts are being offered waivers but support is coming at a price.

"Lenders are increasing the margin on the loan," he added. "And for most corporates, they don't have a choice. It's not exploitative, it is a risk premium," Aggarwal said.

Major banks have already set aside hundreds of millions of pounds of extra cash to cover potential losses.

Lloyds, which provided the most detailed breakdown for the July-September quarter, disclosed a 30% jump in the most severe category of problem loans in its small business unit compared to the end of 2021, hinting at why banks may tread carefully.

Companies of all sizes are already buckling under the strain in greater numbers. The number of quarterly company insolvencies in England and Wales hit its highest level in nearly 13 years in April-June, official data last month showed.

Small businesses face the biggest threat; one in four have considered closing down as a result of rising cost pressures, according to a survey of 1,930 firms conducted by business bank Tide in September.

"Businesses are finding it hard to demonstrate they are still sound businesses," said Richard Burge, CEO of the London Chamber of Commerce and Industry. "But they're only going to be sound if they can get access to the loans they need."

More News
21 Sep 2022 18:00

IN BRIEF: Manx Financial Group acquires 50% of Payment Assist

Manx Financial Group PLC - Isle of Man-based financial services firm - Completes acquisition of initial 50.1% interest of short-term lender Payment Assist Ltd by Manx Ventures Ltd. The consideration rises to GBP4.2 million from GBP4 million previously. Will consolidate 50.1% of Payment Assist's trading results and payable dividend for the final quarter of this year. Once the remaining 49.9% is required, Payment Assist will become fully integrated into the group, it says.

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21 Sep 2022 16:31

Manx Financial agrees higher price for majority share in Payment Assist

(Sharecast News) - Manx Financial Group announced the completion of a majority interest in Payment Assist on Wednesday, for an increased consideration of £4.24m.

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22 Jul 2022 12:33

Manx Financial extends loan terms with Burnbrae, director

(Sharecast News) - Manx Financial Group announced on Friday that Jim Mellon and Burnbrae have agreed to extend outstanding unsecured convertible loans of £1.7m, due to expire on 31 July, for a further five years to 31 July 2027.

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22 Jul 2022 10:24

IN BRIEF: Manx Financial extends GBP1.7 million loan until 2027

Manx Financial Group PLC - Isle of Man-based financial services firm - Says Director Jim Mellon and Burnbrae Ltd have agreed to extend outstanding unsecured convertible loans of GBP1.7 million, due to expire on July 31, for a further five years to July 31, 2027. A loan of GBP1.2 million is from Burnbrae and the remaining loan of GBP500,000 is from Mellon. The new annual interest rate will be 7.5%, previously 5.0%, and the new conversion price will be 8.0 pence per share, previously 7.5p. All other terms are unchanged.

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26 May 2022 11:51

John Spellman to chair Manx Financial's Conister Bank

(Sharecast News) - Manx Financial Group updated the market on the leadership of its wholly-owned Conister Bank subsidiary on Thursday, after David Gibson retired as the bank's chairman at the end of its annual general meeting on Wednesday.

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18 May 2022 15:54

UK shareholder meetings calendar - next 7 days

Thursday 19 May  
Bigblu Broadband PLCAGM
Brand Architekts Group PLCGM re takeover of InnovaDerma
Capital & Regional PLCAGM
Computacenter PLCAGM
Cornish Metals IncGM re equity raise
Dialight PLCAGM
Ebiquity PLCAGM
Eqtec PLCAGM
Essentra PLCAGM
Fevertree Drinks PLCAGM
Gamma Communications PLCAGM
Genuit Group PLCAGM
Headlam Group PLCAGM
Inchcape PLCAGM
InnovaDerma PLCGM re takeover by Brand Architekts
Irish Residential Properties REIT PLCAGM
K3 Business Technology Group PLCAGM
Light Science Tech Holdings PLCAGM
Live Co Group PLCGM
McColl's Retail Group PLCAGM
musicMagpie PLCAGM
Network International Holdings PLCAGM
Next PLCAGM
Pharos Energy PLCAGM
Property Franchise Group PLCAGM
Rotala PLCAGM
Smart Metering Systems PLCAGM
St James's Place PLCAGM
Tyman PLCAGM
Friday 20 May  
Bank of Cyprus Holdings PLCAGM
Croda International PLCAGM
Deliveroo PLCAGM
Georgia Capital PLCAGM
Hikma Pharmaceuticals PLCEGM re capital reduction
Keywords Studios PLCAGM
Real Estate Investors PLCAGM
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Resolute Mining LtdAGM
Restore PLCAGM
Monday 23 May 
Brewin Dolphin Holdings PLCGM re acquisition by RBC Wealth Management
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Empiric Student Property PLCAGM
TMT Investments PLCAGM
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4imprint Group PLCAGM
Afentra PLCAGM
Artisanal Spirits Co PLCAGM
Bidstack Group PLCAGM
Epwin Group PLCAGM
FDM Group Holdings PLCAGM
Forterra PLCAGM
Harworth Group PLCAGM
Henderson High Income Trust PLCAGM
Hill & Smith Holdings PLCAGM
Hilton Food Group PLCAGM
Horizonte Minerals PLCAGM
Judges Scientific PLCAGM
Pebble Group PLCAGM
Quarto Group IncAGM
Restaurant Group PLCAGM
Riverstone Energy LtdAGM
Shell PLCAGM
Thungela Resources LtdAGM
Vector Capital PLCAGM
WPP PLCAGM
Wednesday 25 May  
Access Intelligence PLCAGM
Amur Minerals CorpAGM
Aston Martin Lagonda Global Holdings PLCAGM
Bakkavor Group PLCAGM
Bango PLCAGM
Bodycote PLCAGM
Eleco PLCAGM
International Public Partnerships LtdAGM
Intertek Group PLCAGM
M&G PLCAGM
Manx Financial Group PLCAGM
Mortgage Advice Bureau Holdings PLCAGM
Property Franchise Group PLCGM re final 2021 dividend
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Sabre Insurance Group PLCAGM
Trustpilot Group PLCAGM
Tullow Oil PLCAGM
Zenova Group PLCAGM
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Copyright 2022 Alliance News Limited. All Rights Reserved.

Read more
16 May 2022 17:33

IN BRIEF: Manx Financial acquires 50% stake in Payment Assist

Manx Financial Group PLC - Isle of Man-based financial services firm - Acquire 50% interest in UK-focused point of sale lender Payment Assist Ltd for an initial GBP4 million in cash.

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16 May 2022 13:51

Manx Financial takes majority stake in partner Payment Assist

(Sharecast News) - Manx Financial Group announced on Monday that its Manx Ventures subsidiary has agreed to acquire a 50.1% interest in UK-focussed point-of-sale lender Payment Assist for initial consideration of £4m cash.

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Manx buys out remaining 60pc share of BLX

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UK shareholder meetings calendar - next 7 days

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