Small Talk: The big banks, far from helping small businesses, are blocking their attempts to find finance
The Office of Fair Trading may not have put it in quite these terms, but its latest pronouncement on the big banks’ attitude to small businesses effectively accuses them of behaving like the nasty boy who says “it’s my ball and you’re not playing”.
Last week’s update on the OFT’s market study into the banking services available to small and medium-sized enterprises makes depressing reading: a full-blown referral to the Competition and Markets Authority looks more likely by the day.
The report is all the more disappointing given the obvious efforts of new entrants to the sector to provide the big banks with greater competition. Plus the alternative finance industry – the likes of peer-to-peer lending and crowd-funding – is growing rapidly.
In many cases, the banks are doing their best to get in the way of newcomers, the competition watchdog warns. Some appear to have forgotten the pledges they made following a Competition Commission investigation in 2002 not to require would-be small business borrowers to have accounts with them in order to get finance.
Banks may not be willing to lend to businesses themselves, but they’re effectively preventing others from doing so through tricks such as taking forever to waive securities they have on existing loan arrangements, or failing to complete the documentation required for second charge borrowing.
These examples underline how difficult it is for new providers of small business finance to offer competition.
Nor do these problems bode well for the success of projects that depend on the banks’ co-operation. For example, seven alternative finance providers offering solutions ranging from invoice finance to crowd-funded equity have come together to launch an innovative new platform (see alternativebusinessfinance.co.uk), which they hope will operate as a one-stop shop for small businesses seeking alternative finance. The idea is that each of the seven points customers they can’t help towards the platform in order that they might find another solution – crucially, however, they hope the banks will do the same with customers they can’t offer finance. Don’t hold your breath, chaps.
Herein lies the difficulty facing the OFT and banking competitors today. Many of these businesses sprang up in the immediate aftermath of the credit crisis when almost no finance at all was available to smaller companies. The banks didn’t regard these newcomers as a threat and they were in any case more focused on their own survival. Today, however, the new entrants have built a credible base from which to expand and the established banks are beginning to take notice. They’re certainly not inclined to help their new competitors grow bigger or faster and if they can put up obstacles they will endeavour to do so.
No wonder a full-blown competition investigation is now on the cards.
Fast Track has a new growth prescription
In the pharmaceutical world, it’s the eye-catching treatments for the best-known conditions that tend to get all the attention, but that doesn’t mean there isn’t a good living to be made elsewhere in the sector. Just ask the British company Fast Track Pharma, which is expected within days to announce its intention to float on the Alternative Investment Market in an IPO that will raise £2m and value the business at around £10m.
Fast Track works with existing pharmaceutical products in a variety of ways and focuses on areas such as pain treatments and the gender health market. That latter term is a euphemism for illnesses and disorders that people are embarrassed to talk about, ranging from urological problems to sex hormone difficulties. Globally, the first of these markets alone is thought to be worth £1.73bn.
Fast Track also has an interesting business model. Rather than developing brand new drugs and treatments, it seeks to improve what’s already out there – by seeking licences in new territories for products already in use elsewhere, for example, or by working on formulation or delivery enhancements. That makes it a less risky bet than some small pharma outfits.
More have assets seized over VAT arrears
Small businesses that get behind on payments of VAT are more likely to have their assets seized by the taxman than ever before, figures suggest – despite the Government’s pledge that HM Revenue & Customs will be sympathetic towards companies in financial difficulties.
Data obtained by Syscap, a specialist finance provider to the small business sector, reveals that 3,657 businesses had assets seized by HMRC last year in order to settle unpaid VAT bills – 14 times more than the 263 companies that faced such action five years ago in the 2008-09 financial year. The seizures raised just over £95m from the businesses in question, though Syscap warned that as HMRC often sells these assets at knock-down prices, they may actually have been much more valuable.
The rise has come during a period when ministers have publicly championed the Time to Pay scheme, which is supposed to give struggling small businesses more flexibility as they try to settle their tax bills.
Small Business Person of the Week: Ron DeKoven, Founder, Mybarrister.co.uk
“Since 2004, barristers have been able to take instructions directly from clients, rather than only through solicitors, as had been the case. The idea appealed to many barristers but they worried about the cost of marketing their services and were concerned solicitors would blacklist them if they started going direct. I realised there was an opportunity for a business here to take those problems out of the equation – if we could solve the marketing headache for barristers, and attract enough barristers so solicitors wouldn’t have the option of blacklisting them.
“It took almost two years of thinking and planning to get up and running. We started with a soft launch, and learned a great deal from our early months of trading, so that we were able to really go for it later that year.
“Barristers pay us a £1,200 annual membership fee and agree to give their first half-hour of time to clients at no charge. The clients pay nothing to us, but can use our site to find a barrister specialising in the particular area where they need help. We get a broad range of inquiries – and we can help people on the phone as well as online – but the leading issues are family, employment and immigration.
“It’s going really well – we’ve already signed up more than 100 barristers and we’re getting 200 to 300 visits a day from potential clients.”
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