Fledgling entrepreneur Marc Bringmann is running short of time. For the past
few weeks he has been poised to launch a casual-dining Indo-Chinese
restaurant, Monsieur M, inside Shoreditch town hall near London’s trendy
Hoxton Square.
Bringmann, 40, has the chef, the planning permission and the fit-out company
ready to go. Having raised £110,000, he needs to borrow an additional
£220,000. While he tries to secure the funds, his suppliers and his landlord
are getting impatient.
Earlier in the year, Bringmann thought he had the funding in place. “I spoke
to the bank and we were all set. Then the whole thing fell through. The bank
said it did not like the fact I had a personal loan, even though there were
no problems with it. It was just an excuse.”
Chancellor Alistair Darling and business secretary Lord Mandelson declared
this week that restoring lending to small firms like Bringmann’s was at the
top of the government agenda as it secured up to £4 billion this week from
the European Investment Bank (EIB).
The new measures come on top of government efforts to help cut the cost of
borrowing, to speed up payments to small firms and to increase lending to
SMEs through the Small Firms Loan Guarantee (SFLG) scheme, in which it
guarantees 75% of any loan up to £250,000.
After every lender he approached rejected him, however, Bringmann does not
hold out much hope the banks will start lending again soon. “The government
has announced these measures but I have been banging on closed doors for 10
months. I think the loan from Europe is going to take time to filter
through, perhaps not until the second half of 2009.”
Andrew Carruthers, chief executive of Spark Ventures, which invests in more
than 70 small early-stage and start-up businesses, also doubted the new
lending from the EIB would make a difference.
“It’s hard enough in good times for banks to lend and it’s even harder now. As
for the Small Firms Loan Guarantee scheme it is a total red herring. Banks
find it too bureaucratic and time-consuming to administer,” he said.
Carruthers’s advice to the companies his fund invests in is stark. “We are
telling them to get to cash-flow breakeven, to spend every pound as if it is
their last and to axe costs fast.”
It is not just start-ups that are suffering from tighter lending conditions.
Paul Huggins, chief executive of Darlington-based JLM Global Foods, which
makes healthy snacks, has spent most of this year struggling to find the
money to expand.
Sales have doubled to £4m in the past year and should grow by at least 50%
next year, said Huggins. Despite such healthy prospects, he searched in vain
earlier this year for £200,000 to finance new production equipment. “Our
customers are AA-grade levels, companies like Sainsbury’s, Asda and Aldi,
the kind of companies no-one is worrying about whether they can pay the bill
or not.
“Despite that the bank wanted personal guarantees and was asking us for 20%
interest rates. They should be supporting small business, but in the end we
got the money we needed by selling shares to a private investor. The cash is
coming in now and we are out the other side – no thanks to the bank.”
Huggins said he would not forget the lack of support shown by his bank in a
hurry. “If it had not been for a private individual who had faith in us, we
would not have been able to do what we did. The bank is not going to get
anything out of me now for the next 10 years.”
Entrepreneur Asad Khan sees no sign of bank lending coming down in price yet.
He is trying to find a commercial mortgage to replace an expensive bridging
loan on one of his chain of modern Indian restaurants.
He has rejected a mortgage offer of 3.5 percentage points above Bank rate.
“They’re ratcheting their rates up but they’ve also doubled their
arrangement fee to 2% and added a security charge. Just to do the deal would
cost me in the region of £10,000. Their pricing strategy seems designed to
drive customers away rather than to do new business. The government has lent
them all this money and yet they’re still putting pressure on small firms.”
The lack of clarity on its lending position and the amount of time spent
corresponding with the bank has been frustrating, said Khan, who said he was
at breaking point with his lender.
“It has been such a waste of my time. I thought we had a good relationship
with the [people at the] bank but they seem to be trying to end it.”
William Flatau, of the business broker First Finance, who has set up
lendertracking.org, a website to monitor bank lending to business, said
Khan’s experience reflected what many brokers were saying, that banks were
still reducing lending facilities and charging high fees for lending in many
cases.
“At the rates they are offering now it is very difficult for businesses to
repay loans, which means they don’t borrow. My message to the banks is
simple: people are throwing money at you now so cut your rates.”
The banks dispute claims that they are no longer lending. Steve Cooper,
managing director for local business at Barclays, said acceptance rates for
all borrowing requests were down only marginally from 90% to 80%.
Cooper, who attended the meeting with ministers, the EIB and UK banks on
Thursday, said the plans announced on the day would make a difference to
small firms in the coming weeks and months. “The criteria the EIB lends
money on have been relaxed. Whereas 10-15 applications a month would have
qualified before, going forward that number will be in the hundreds.
“It’s important to be clear, though, that this does not mean a relaxation in
lending standards. This is not free cash and the businesses we lend to still
need to be viable. Marginal businesses will still find it hard to get
funding.”
Barclays would pass on the full benefit of lower borrowing costs to small
firms as base rates and lending rates between banks fall, said Cooper.
Despite claims that banks did not like the SFLG scheme, Barclays was lending
more to small firms through it, he added.
Barclays plans to launch a new marketing campaign to attract new lending
through the SFLG scheme in the new year, said Cooper. “I think it’s true
that the scheme has not been terribly well marketed before, but we’ll be
lending more money to more companies through the scheme.”
Bringmann remains doubtful, however. “The banks all say in public they are
open for business but a lot of them have told me ‘sorry we don’t do
start-ups.’ No bank is going to say ‘we don’t like the Small Firms Loan
Guarantee scheme’, but I’m working with three finance brokers now and they
are all telling me no-one is going to go near the SFLG scheme with the
market as it is.”
Despite the difficulties he faces, Bringmann is convinced of the opportunity
he has spotted. “There’s an upswing in the good-value, casual-dining market.
The big operators are investing heavily in this area, which gives me
confidence I’m doing the right thing. What’s missing is the chance for a
small player like me to get off the ground.”
Having given up his job, Bringmann is living on his savings. “When you’re an
entrepreneur you know it’s all in, but I need someone else to show a bit of
faith in the company and look at the bigger picture. This business is going
to make money and create jobs. If people don’t start companies the economy
is not going to expand.”
