Business Reports

State aid rules must not force banks to abandon small businesses, says FPB.

The Forum of Private Business (FPB) is urging the European Commission not to force the UK’s part-nationalised banks to abandon more than two million of their small business customers.

According to reports, the Commission is preparing a ruling under which Lloyds TSB and the Royal Bank of Scotland (RBS) will each be required to shed 10% of the small businesses on their books in order to avoid contravening its ‘state aid rules’. The final decision will be made by the EU’s Competition Commissioner Neelie Kroes.

In October 2008 the Commission published new guidelines relaxing the rules governing the state funding of financial institutions, which are imposed to avoid distorting competition across the EU. State aid can be provided for ‘as long as it is necessary to cope with the current turmoil in financial markets’. However, it must avoid ‘unjustified benefits for shareholders of financial institutions’.

The UK has injected £37 billion into three of the country’s largest financial institutions in the past twelve months. Along with its subsequent Enterprise Finance Guarantee (EFG) scheme, the move was designed to stimulate the flow of credit to consumers and businesses at a time banks are trying desperately to recapitalise.

Yet the FPB’s research shows that, despite recent indications of marginal improvements, access to commercial finance has plummeted during the past year.

Despite relatively high levels of optimism about future growth, an overwhelming 77% of respondents to the FPB’s latest quarterly Referendum survey reported seeing the terms and conditions of lending deteriorate in the last year, with many being forced to provide more security to cover their current lending levels.

Just 4% of FPB members said they had seen access to working capital improve in 2009, with 58% believing it had worsened. Of those surveyed, 65% said it was harder to access finance for growth and 68% said the cost of finance had increased.

When asked how the issue of finance could be improved, 36% of small business owners said they wanted to see a reduction in the cost of lending. Further, 27% said greater flexibility in negotiating and adapting terms and conditions to meet the changing needs of their business would be welcome.

Earlier research from the FPB shows that, at 6.5%, average interest rates for both loans and overdrafts remain well above the 0.5% Bank of England base rate.

It is believed the Government is probing the lending mechanisms of Lloyds TSB and RBS amid criticisms that both banks are pricing corporate loans at unrealistic levels.

Ministers have also extended the scope of the EFG to cover overdrafts and invoice financing arrangements, as well as loans, in an attempt to ensure that UK bank lending meets its targets.

The banks are reassessing how they manage their lending portfolios, and holding them to the letter of the European Commission’s state aid rules would mean small firms bearing the brunt of competition law. The FPB believes that sacrificing these firms would unfairly punish them for the actions of the banks and significantly undermine economic recovery in the UK.

“Our members are telling us that the banks are dragging their heels and driving up prices when it comes to lending to small businesses,” said the FPB’s Policy Representative Matt Goodman. “This is despite the Government bailing them out at record levels and underwriting lending via the EFG. But it would not be acceptable to allow two million small businesses to be cut adrift in retribution for contravening European State Aid Rules. The European Commission must demonstrate understanding for businesses on the ground as well as the financial markets.”

Net Helps Businesses Beat Recession

The internet is one innovation helping small business bosses deal with strategic decisionmaking and survive the current recession, according to results revealed by the latest UK Business Barometer and Business Adviser Barometer surveys.

These parallel quarterly surveys of small business owners and business advisers produced by The University of Nottingham Institute for Enterprise and Innovation (UNIEI) show some of the tactics businesses are using to adapt to the pressures of trading during the Credit Crunch. They also track growth forecasts, perceptions of the availability of external debt financing and other key factors.

In the new analyses, business people report a willingness to ‘pull together’ and collaborate with neighbouring firms to share costs and achieve efficiency gains. And they realise that to stay successful they must ‘innovate or die’. Many are now focusing more closely on internal financial and credit management systems and procedures to spot weaknesses that may be costing them money.

Both groups of Barometer respondents provide regular trend data, views on selected topical issues and open comments to express their opinions. Feedback from participants — the majority of whom contribute regularly every quarter — also influences the questions asked in future Barometer surveys.

“This rich data and the accompanying qualitative attitudinal information analysed by our team reveals the experiences of real business people representing smaller enterprises — 98 per cent of UK business — as well as their expert advisers,” said Director of the UNIEI Professor Martin Binks. “The Barometers complement other quantitative surveys which speak for larger corporate businesses.”

More information covering finance , net use and innovation trends can be found at www.ukbb.ac and www.ukbab.ac

First Computerised Negotiating Agents to be Available by Christmas

Computerised agents developed by a University of Southampton academic, which will negotiate the best online deals for buyers and sellers, will be fully operational by the end of the year.

Aroxo, a new and unique marketplace that helps buyers and sellers for products and services to negotiate with each other, has appointed Professor Nick Jennings, Professor of Computer Science at the University’s
School of Electronics and Computer Science (ECS), as its Chief Scientific Officer.

Professor Jennings is now working with the company to provide computerised agents capable of entering into automated negotiations for buyers and sellers who use Aroxo.

“I am really excited about this since I have been saying for a long time that software agents will have a real place in our lives and now it’s really going to happen,” said Professor Jennings. “These are algorithms
that we have been working on in abstract for 20 years or so and now they are actually going to be used in commercial business on a large scale.”

According to Matt Rogers, Co-founder of Aroxo, the new automated system currently under development will provide the first twoway negotiation between buyer and seller online.

“Our system will enable sellers to use computerised agents to negotiate on their behalf while they get on with other things,” said Matt. “All of Aroxo’s sellers are based in the UK, so this is really helping British buyers
and sellers.”

The developers will make this service available initially online with plans to go on to offer it through mobile platforms.