Tuesday, March 17, 2009
I make no apologies for returning to this theme again.
Amid much fanfare and rush to help small businesses, Mr Brown announced in January a new £1.3bn scheme to support SME's. This was called the Enterprise Finance Guarantee. Good name, must have taken a lot of advisors to think that one up.
Great news for many companies that could not access prime lending from their effectively bust banks, you may have thought.
I have spoken to dozens of people, accountants, directors and advisors. Not one has seen a company receive such a loan. The government insists some £30m per week is being advanced, but then we have to take any statement of this nature with some degree of scepticism.
After all, despite statements to the contrary, this money is ONLY AVAILABLE WITH PERSONAL GUARANTEES FROM DIRECTORS. Yes the banks get 75% of the loan underwritten by the Government, but the bank's are so risk averse they want 100% of the loan covered by PG's as well!
This is an extract from a BBC article online
Small businesses minister Shriti Vadera told BBC Radio 4's Money Box the government is on track to persuade the banks to loan the money it wants.
"We've now hit the rate that we need of eligible applications every week which means the scheme is completely on course," the minister said.
"We've currently got £115m of eligible applications, about £30m a week."
Nevertheless, a British Chamber of Commerce survey of 250 UK firms discovered 90% of those questioned did not know about it.
It only found one company which had actually been offered such a loan. Others who have been offered loans object to having to offer 100% directors' guarantees.
So the directors who have already taken huge risks to build up their companies, working 80 hours a week, forgoing family life, having probably already remortgaged their home, are now also expected to provide a PG secured against their properties.
Would you do that? Or would it be safer to see the company fail and start again?
One caller last week had actually been offered a loan on these terms but his wife refused to allow the security to be charged against her home. That company is now entering creditors voluntary liquidation. Little wonder.
So my message to prople looking at the EFG is this, don't get your hopes up, expect swingeing fees, and be prepared to lose your house. Enterprising scheme indeed.
UPDATE 23rd March
Sunday Times article 22nd March 2009, yesterday reported on interview with Baroness Vadera Business Minister for HMG. She stated that there have been £30m a week of loans granted now under EFG, so thats the scheme working as planned she says, once more.
As to PG's and the banks, she stated that the banks will not be able to take new guarantees secured against matrimonial property. So thats clear then, they can take a PG but they cannot secure this against property?
But, if you already provide a secured personal guarantee (i.e. one secured against your home) that will not stop the bank taking this into consideration in a future default. Clearly a PG can be called in and the guarantor made bankrupt if he or she cannot pay.
This will be very interesting in the fullness of time. Imagine if £1.3bn of loans are given to SME's, then we have two years of recession and slow recovery. Obviously some of these companies will fail in future.
Then the loans will be called in. So we could have the PR nightmare for that next Government of the Government owned banks taking houses from people whose business has collapsed?
What fun and games that may lead to.
Monday, March 16, 2009
Increasing use of the CVA tool for quoted, household name companies is a welcome development. I note that the board of JJB Sports are considering a CVA for part of their group according to the Sunday Times. Of course we won't know the shape of this until it is in the public domain, if it ever gets there.
Ok Stylo's CVA was rejected because of the landlord backlash, but the premise of the deal was a good one for all parties. Perhaps a little more discussion and better offer to the landlords would have led to an approved CVA, but we were not party to the decision making process or private discussions with the landlords and their advisors.
As far as I am concerned the more listed company CVAs that are written and agreed the merrier. To that end we have a detailed 80 page guide to CVAs that will answer many of the queries you, your board/members or your clients may have on the process. KSA CompanyRescue is happy to send you a free copy upon request.
Should you wish to address the full range of options for your client (or your own company) including pre-pack Administration, liquidation, administration followed by CVA or informal trading out,
then you should get expert advisors to look carefully at the current position of the company, its restructuring options and legal obligations.
I am pleased to say we are currently advising two listed companies and using CVA to restructure the businesses, one is listed in the USA with 8,000 shareholders and one in London (AIM with around 600 shareholders). We are also advising a number of private equity funds on rescues that will preserve struggling companies using a CVA.
If you are a private equity investor with a distressed client call me on 07974 086779 now.
Send me an email if you want the guide, we will send it by return: firstname.lastname@example.org
Friday, March 06, 2009
The Bank of England is running out of options.
At 0.5% the interest rate tool is all but exhausted. Now the theory goes we (Mr and Mrs taxpayer) will buy bonds and debts from banks to give them a windfall and some money to lend to us mere SME business people and the people who are desperate for a mortgage.
Great news, except I doubt it will make a huge difference for the short to medium term. To quote Theo Paphitis on Panorama (BBC), "the banks are making it up as they go along".
In every "solution" there is a problem that the banks seem to use to stop taking a lending risk.
For example under the new EFG (Enterprise Finance Guarantee) scheme the banks are encouraged to lend money to SME companies and get a Government Guarantee that if the business fails 75% of the loan will be underwritten by HM Government (us).
Great you may think, but don't get excited yet,oh no!
KSA CompanyRescue has seen term sheets from those banks that have got their act together and produced them. The 25% bank "risk" is not going to be a risk at all to the banks, they hope. Why because the directors will be required to sign a personal guarantee for the 25%!
So, it seems likely that many applications will be rejected as the directors have no equity in their homes!
Let us see what happens with so-called "quantitative easing " or printing money - will the banks find new ways to mitigate lending risk to SMEs?
Now that their risk profligacy of 1997-2009 has been exposed, they seem to have turned 180 degrees and stopped taking any!
Tuesday, March 03, 2009
No blog for a while as I have had a week in St Anton, Austria pretending I can still ski on tough slopes! Gave me time out from the day-to-day and away from the almost relentless gloomy economic and business news.
Trying to keep up with apres-ski activities is also a lost art!
Back to work yesterday and the article from Sunday papers that strikes me as the most worrying, is the Ambrose Evans-Pritchard take on global economies and currency issues.
The drop in industrial production that is being reported across the globe is of awe inspiring magnitude. Evans-Pritchard reports that:
Factory output is collapsing at the fastest pace everywhere. The figures for the most recent month available are, year-on-year: Taiwan (-43pc), Ukraine (-34pc), Japan (-30pc), Singapore (-29pc), Hungary (-23pc), Sweden (-20pc), Korea (-19pc), Turkey (-18pc), Russia (-16pc), Spain (-15pc), Poland (-15pc), Brazil (-15pc), Italy (-14pc), Germany (-12pc), France (-11pc), US (-10pc) and Britain (-9pc). Norway sails blissfully on (+4pc). What do they drink up there?
This terrifying fall has been concentrated in the last five months. The job slaughter has barely begun. Social mayhem comes with a 12-month lag. By comparison, industrial output in core-Europe fell 2.8pc in 1930, 5.1pc in 1931 and 3.9pc in 1932, according to RBS.
So in my view, unless car, OEM, industrial and other manufacturers recover near normal levels of activity in late 2009-2010 we are in for huge slides in GDP across the globe. This is linked heavily to the credit crunch of course, consumers and businesses cannot find financial products to buy new cars, printing presses, trucks, servers, machinery and so on.
More locally the impact on British companies will be very severe over the next 18 months.
Heavily indebted/highly geared companies have gone first into insolvency in recent months, as a result of their inability to service or refinance their debt. My concern is "good" companies with more modest gearing will follow because of matters beyond their control.
At the risk of being repetitive:
If companies have growing financial problems, they should act fast, get cash under control, cut costs rapidly and deeply, examine all spending /investment plans carefully and talk to their banks. Get advice from experts in turnaround not insolvency practitioners! All good advisors will give some free time to assist you, if they won't, find one that will.
BUT, the one thing they should not do, is to stop marketing.
In my view there is no doubt that with services like Blogs, web sites, Twitter, Facebook, Google supported by your own databases that marketing has never been cheaper, or more effective if "done right".
So get marketing your business and tell as many people as you can what a great product/service/business you have!