The National Loan Guarantee Scheme is the latest offering from the Government to ease the Credit Crunch by encouraging lending to small and medium sizes business (SME,s) with turnover of less than £50m. A total of £50bn has been earmarked for the scheme to be lent to SME’s ove the next 2 years. Most of the high street banks have signed up to this scheme including Royal Bank of Scotland (mainly its NatWest arm), Lloyds, Barclays, Santander and the new specialist lender, Aldermore Bank.

Contrary to what people may think the Government is not lending its own money but only guaranteeing the loans made to the banks. This enables the banks to borrow from the money markets at a reduced rate as the loan is underwritten by the government. By borrowing at a reduced rate the bank is able to lend to SME’s at a rate generally 1% lower than would normally be available to them.

The banks are still responsible for their lending decisions and loans that default are the responsibility of the banks. This is the crux of the matter in that if a company was refused a loan before because the banks deemed the loan was too risky then nothings changed, the company will still be refused the loan. The only pressure on the banks to lend is the same as before under Project Merlin, which did not amount to much more loans being made. This is what the HM Treasury have to say about the National Loan Guarantee Scheme.

What changed the banks minds? One thing was the amount of projects they had on their books that were in negative equity, why waste more money on schemes that will make a loss. These loans normally would have been foreclosed but if that happens then the loss has to be included in the accounts, whereas if they are left as they are they can be classed as an asset on the balance sheet. All of the banks have equity shares in house building companies, in fact according to the Sunday Times of 8th January 2012 Lloyds, with their acquisition of HBOS are now the fourth biggest house builder in the country only behind Barratt Homes, Persimmon and Taylor Wimpy.

This on top of the new banking regulation that requires banks to hold more capital and the current view that we are entering Credit Crunch Part 2 have dried up the loans banks are willing to lend. Fortunately there are some alternatives to the High Street Banks; niche private banks are still lending and so are Bridging Loan lenders. The rates that these lenders charge are a lot higher than that that was previously available from their banks but for the right project a decent return can still be generated for the developer. The developer has now to have “some skin in the game”, that is some of their own money invested in the scheme. However 100% build costs are still achievable with a contribution towards the cost of the purchase of the site. In some cases a joint venture could also be set up where the lender funds the whole development costs including land purchase and build costs the resulting profits are then shared 50-50 between the lender and the developer. Although for joint ventures the development has to be in a prime location in the Southeast.

Unfortunately with regards to the High Street Banks that old adage applies that they will only give you an umbrella when the sun is shining.

This brings us to China, whose growth figures for the third quarter of 2011 were 9.1% with a projection of around 8% for the economy in 2012. With these figures and the increase in inflation the outlook for China is not looking rosy. There is a speculative property bubble in the main cities and talks of loans that are held by local governments turning bad.

“China finds $84bn local government debt irregularities” with headlines like this on the BBC this is reminiscent of the events that happened in America pre crunch with talk of a soft property bubble landing. No cross contamination from subprime mortgages and the view that all subprime mortgages cannot fail at once. They said “this time it will be different”.

How will this affect the UK’s economy in 2012? Well, with no solution to the Euro crisis in sight and the chances of getting any agreement with 27 independent countries all looking after their own interests, economical as well as political it does not look good.

As one old communist leader said “this year will be worse than last year, but next year will be even worse than this year”

There is only so much pain the Greeks can put up with caused by cutting wages and cutting jobs. Also there is only so much German money Angela Merkal can persuade the German Government to pay out to the “profligate Greeks”.

The way out of the Euro Crisis, we are told is for cuts in wages and Government spending and a rise in private sector employment thus raising more revenue for the Government in taxation. However with every country in the European Union tackling their crises in the same way, with the backing of the IMF (International Monitory Fund), who is going to buy when all countries are trying to get out of the crises by increasing exports? Where is the buyer of last resort? It used to be us in Europe and the USA. Not anymore, and it will not be China as their economy is based on exporting goods not importing them in bulk from Europe.

However the Crisis is solved, either through the peripheral countries defaulting and leaving the Euro or by the crisis being continually deferred by kicked down the road there is going to be a lot of pain for all of us involved.

So do still go to Greece for your holidays but don’t book or change your Euros just yet. Even the Greeks do not riot during their summer holidays.

Are there any solutions for the hard pressed farmer? Fortunately yes, private finance is available to plug the gap left by the High Street Banks with short terms loans secured over farms and farm land. As these loans are non-status the income profile of the borrower is not such an issue as it is with the banks. However a realistic exit strategy has to be in place to repay the loan at the end of the term. Loans can be for up to 4 years and in some circumstances can be for longer. Interest rates are also flexible, generally from 1.25% but if the loan to value (LTV) is low then the interest rate can also be lower. These short term loans are generally on a first charge basis but can be on a second charge basis if there is enough equity in the property or land. However second charge lending is at a higher rate than first charge loans and the LTVs may not be as high.

Short Term Finance Loans are very fast to arrange with most loans available to draw down within 10 working days. Interest payments can be rolled up and settled when the loan is redeemed; this is dependent upon there being sufficient equity in the property. Loans can be used for any legal purpose and as the loan is secured on property there will be no need for elaborate business plans or lengthy descriptions about the use of funds.

Some of the panel of our Short Term Asset lenders have introduced a new product, a Flexible Business Loan, which will provide an alternative to credit cards and overdrafts. Although the interest rates are similar to overdrafts and credit cards the facility is more flexible and simple to understand. The loans are pre agreed and secured on company assets up to an agreed figure.

Key Points of The Business Flexi Loan

• For small businesses, partnerships, corporates and LLPs.
• Maximum Term: – 12 months with automatic renewal subject to the facility being operated satisfactorily
• Amount: From £26,000 to £100,000
• Security required, 1^st or 2^nd charges accepted and other assets considered
• Up to 70% LTV
• Interest Rate: Between 2.5% to 3% per month
• 1.5% set up fee with a minimum of £500
• Draw down and repayment in multiples of £1,000 subject to 2 days notice
• In principle decision within 48 hours
• No End or Early Redemption Fees
• Interest only charged on outstanding balances
• Assists businesses with seasonal cash flow requirements

So instead of wasting your time with unresponsive banks why not try our Business Flexi Loan. Easy to understand and no need for elaborate business plans as the loans are secured on assets. The Business Flexi Loan is especially suitable for businesses whose cash flow fluctuates over the year or where upfront costs are necessary to procure materials with a long lead time before sales.

So don’t just sit there waiting for the bank to get back to you, call us now for more information or a quote.

A simple and relatively cost effective solution to cash flow problems is to use a secured second charge short term business loan. These are secured loans raised on commercial or residential property that sit behind any existing first charge loan or mortgages. As the amount of the loan compared to the value of the property is normally no more than 70% the applicants status and proof of affordability is normally not a problem. Even borrowers with poor credit history will not be excluded, provided there is a viable exit route in place. However, the term of the loans are normally for no more than 12 months, after this they have to be repaid. Rates as would be expected for this type of short term lending are higher than for conventional lending and range from 1.5% per month upwards depending on the type of security and the size of the overall lending in relation to the value of the security.

As this type of lending is for business purposes it is not regulated as mortgages are. Funders for this type of borrowing will lend throughout England and Wales and some will lend in Scotland. In most cases a RICS valuation will be required to be carried out to confirm the value of the property and also that it is suitable for lending purposes. However if the overall loan to the value of the property (LTV) is small then in some circumstances a valuation will not be required. To complete the loan process a solicitor will be required to complete the transaction to ensure that the charge is correctly placed on the property and that all money laundering regulations are strictly adhered to. Both of these costs for the valuation and legal work will be paid for by the applicant.

Even when these costs are taken into account they are similar to credit card rates or overdraft rates and most importantly they are readily available. To apply for a Short Term Business Loan it is advisable to apply through a Specialist Broker who is able to access your needs and lead you through the application process. Specialist Brokers can direct you to the most appropriate lender for your circumstances and thus provide you with the best deal available in the market. The loan advisers at Sunrise Commercial Finance have up to date knowledge of all lenders in the market place and some that do not market their loans directly to the public.

So, if you require a Short Term Business Loan why not call one of our Loan Advisors now, we are waiting for your call.

Although rates for this type of loan are higher than the pre-crash costs of business bank lending they do compare favourably to the new rates that banks charge, overdraft charges and credit card rates. Rates start from 1% per month and terms are generally up to 12 months but in some instances can be for 24 months.  The application process can normally be completed within 10 working days; this time can be shortened to a matter of days if all parties are ready to proceed. Short Term Business Loans can be on a first or a second charge basis, although second charge loans tend to take slightly longer to complete as permission of the existing first charge lender has to be granted. As the loans are secured on property there is no requirement for a business plan or in some cases business accounts.  The only information required is an indication of the exit route.

So instead of wasting your time with the high street banks why not try a Short Term Business Loan secured on property with no intrusive application process. Call one of our Senior Loan Officers for a confidential discussion about your lending requirements on 0843 289 6424. Short Term Business Loans are not available for personal debts or non-business related purposes.

Properties where this type of funding is available are residential houses and flats, commercial and semi commercial properties. Flats and houses can be either single or multiple units, either leasehold or freehold. However if you are purchasing a house that has been converted into flats make sure that the appropriate planning permissions were obtained.

This type of finance is only advisable if you are able to get a re mortgage after 6 months or if you have a re sale in place.

All loans secured on investment, buy to let and commercial properties are not regualated.

This type of investing is becoming more attractive to High Net Worth Individuals who are tired of earning 3% on their cash and is featured in The Sunday Times Money Section page 6 31st October 2010.

If you are interested in this investment opportunity contact us on 0843 289 6424 for an informal chat with one of our Senior Loan Officers.