Today the Bank of England released the results of its Credit Conditions Survey for Q1 2008. This survey of bank and non-bank lenders, conducted between 25 February and 19 March 2008, provides a useful indication of current credit conditions and future trends in the supply (availability) and demand for credit.

Overall credit conditions in the UK tightened over the past three months, with the survey reporting that lenders reduced the availability of credit across their lending activities to households and businesses and expect to do so again in the coming three months.

The main findings of today’s survey release are as follows:

Secured lending to households and businesses

• Lenders reduced the availability of credit made to households and the business sector in the past three months of 2008 and expect to reduce credit further over the next three months. This is primarily a reflection of a reduced risk appetite and increased concerns about the macroeconomy (and the housing market in particular). Demand is expected to fall over the next three months.

• Lenders reported that spreads on secured lending had increased significantly across all types of borrowers during the past three months. Spreads were expected to widen further over the coming three months.

• Default rates and losses on loans in default increased over the past three months, and were expected to increase further over the coming three months.
Unsecured lending to households and small businesses

• Lenders reduced the availability of unsecured credit during the past three months of 2008, and expect to reduce availability over the next three months. This is primarily a reflection of tightening in credit scoring criteria applied to applications for non credit card unsecured borrowing. Demand is expected to fall over the next three months.

• Spreads on non-credit card unsecured lending had increased over the past three months and were expected to remain broadly unchanged over the coming three months.

• Lenders reported that default rates on credit card debt had fallen slightly over the past three months, though default rates on non-credit card unsecured loans were reported to have increased slightly.

Lending to corporates

• Lenders reported that they had reduced overall credit availability to corporates over the past three months of 2008 and report a fall in credit demand from medium sized corporates.

• Spreads on new lending increased over the past three months, coupled with higher commissions and fees. Over the next three months, lenders expected a further widening in spreads, and a further increase in fees.

• Default rates and losses on loans in default were expected to increase over the coming three months.

If anyone would like a copy of the Bank of England’s publication, please let me know.

Source: Finance and Leasing Association

An excellent take on business meetings by Author, Broadcaster and Consultant Guy Browning:-

” Half of every working day is spent in meetings, half of which are not worth having and, of those that are, half the time is wasted. Which means that nearly one third of business life is spent in small rooms with people you don’t like, doing things that don’t matter. The only reason people have so many meetings is that they’re the one time you can get away from your work, your ‘phone and your customers.

People say that the secret of a good meeting is preparation. But if people really prepared for meetings, the first thing they would realise is that most are completely unnecessary. In fact, a tightly run meeting is one of the most frightening things in public life. These are meetings before which you have to prepare, during which you have to work and after which you have to take actions. Fortunately, these meetings are as rare as a sense of gay abandon in the finance department.

Time in meetings is always different from real time. A quick ten-minute catch-up can fill a whole morning. One of the reasons for this is that work in meetings doesn’t actually start until someone says, “I’ve got a meeting to go to.” A cancelled meeting is the sweetest thing in office life. One way of making your life in the office a lot easier is to book a lot of unnecessary meetings and then cancel 90 per cent of them. This leaves your diary almost completely free for relaxation, or work if you’re that way inclined.

When you go on a week’s holiday you miss an average ten meetings but, curiously, no one misses you. That’s because meetings have a life of their own, regardless of the people in them. The moral of this is, that whenever someone asks you to be in a meeting, say that although nothing would give you more pleasure, sadly you are going to be on holiday. The following week carry a suitcase rather than a briefcase round the office in case someone spots you walking past a meeting you are supposed to be in.

Meetings are a lot like heaters in old taxis - they just recycle hot air until you get a headache and have to open the window. Airtime in meetings is generally hogged by those with the loudest voices and biggest egos. Normally these are the very same people who come up with the worst ideas.

All the best thoughts and ideas in any meeting are had by people who contribute absolutely nothing and sit in total silence. Most meetings are spent either talking about problems arising from work that hasn’t been done or talking about work that needs to be done to tackle problems. There are so many of these meetings that there is very little time to do any work or solve any problems, which means only one thing - more meetings.

Breakfast meetings are different from other meetings in that people are asleep at the start rather than at the end. One of the problems with business breakfasts is that you can never eat what you normally have for breakfast. No one’s going to be impressed at a top-level meeting if you’re tucking into a bowl of Coco Pops. Instead, you have to eat things that only religious zealots and French people would touch, like grapefruit and croissants.”

Source

A new survey conducted for the CBI to the owners, chairmen and directors of 500 SME’s has highlighted concerns regarding the possible availability and conditions of future credit.

Whilst the results revealed that only 12% of firms surveyed had already experienced a deterioration in the availability of capital, 22% expected some constraint over the next three months, and 31% over the next 6-12 months. Overall, some 35% are either experiencing, or expect to experience, some deterioration.

According to the survey one in five (19%) of the firms questioned said credit tightening was currently affecting or was expected to affect business decisions and plans. Of this fifth, 34% said they are cutting output or stock levels, 29% are trimming capital investment (and a further 25% postponing investment plans), while 26% are cutting jobs or recruitment plans.

The main worries concern the increased cost of borrowing together with more stringent lending conditions. Concerns regarding the availability of new finance and the withdrawal of previous credit lines were less frequently sited.

Following the credit problems in the US, we have already seen several lenders in the UK affected, with companies such as One World Leasing pulling out of the marketplace and cancelling all approved facilities that had not yet been drawn down.

Traditionally, many businesses have felt that Brokers were primarily concerned with obtaining funding for companies who struggled to obtain the credit themselves or only operated in very specific markets. Whilst this is an area where brokers may be able to assist, they are also often able to improve the terms offered by many high street lenders, through the sheer volumes of business they introduce together with their access to many lenders not widely known to the marketplace.

In his book “Anyone can do it”, well known entrepreneur Duncan Bannatyne says “Shopping around, I got a particularly good deal from one particular lender as a broker i’d used had told me they were desperate to get into the UK commercial market. I might have preferred not to pay a broker’s fee, but it worked out cheaper to pay for his knowledge, and i’ve often found that specialist expertise can be worth the relatively small investment it requires” (Note: Many brokers don’t in fact charge their clients a fee as they earn their money from their panel of lenders on a volume related basis.)

Mike Boss is the Managing Partner of The Boss Corporation, one of the UK’s leading independent provider of IT finance. The Boss Corporation specialize in the provision of IT finance, including Software transactions. They also work with Software Houses and Resellers enabling them to offer a bespoke client financing option.

This is often what we hear when first discussing financing options with a potential new client.

The words “Equipment Leasing” to some means simply rental and never actually owning the asset. Some Finance Directors still think of that Photocopier Lease they took out all those years ago, which they continued paying for years after the primary period, or when they did try to terminate the agreement, a huge balloon payment bill landed on their desk.

To others, a bank loan is by far the cheapest way of funding the equipment and “you know where you stand with a bank loan”. Of course the most common response is “we always pay cash”.

Therefore it will probably surprise you to know that industry statistics show that 89% of Times Top 100 Companies are leasing all or at least some of their IT and other business equipment. But why ? These companies are large, blue chip companies, with plenty of “cash”, why would they want to lease their equipment ?! Tax, tax, TAX! By leasing the equipment, as opposed to paying cash or using HP, you are allowed to offset 100% of the rentals, both capital and interest, against your taxable profits. This is why leasing usually offers the cheapest net cost of any form of finance, often cheaper even than paying cash.

Yet many companies are still doing all they can to avoid the dreaded lease, simply because they don’t really understand it. Why ? The finance industry itself is largely to blame. Many salespeople from lenders are comfortable with traditional HP or Loans and will try to fit the customer to this type of agreement, as opposed to tailoring an agreement to suit the client.

In addition to this, many clients are still being put off leasing, by funders who continue with their “minimum term” contracts and are only too happy to collect the secondary period rentals when the client forgets to terminate the agreement, or else simply doesn’t understand the options available to them.

So, next time you’re about to sign that bank loan agreement, step back for a moment, consider it’s variable rates, large annual fees, inflexible terms and restrictive covenants. Ask your accountant or independent advisor about the costs and terms associated with leasing, conduct an absolute comparison factoring in all the costs,as this may well be a better option for you.

Mike Boss is the Managing Partner of The Boss Corporation, one of the UK’s leading independent provider of IT finance. The Boss Corporation specialize in the provision of IT finance, including Software transactions. They also work with Software Houses and Resellers enabling them to offer a bespoke client financing option.

Do you currently work with a finance partner to offer your clients a finance option ?

Some replies we often get from IT Vendors:-

1. “All our clients are large, blue chip companies, who don’t need finance” - Due to the considerable tax benefits associated with leasing (making it cheaper than paying cash), 89% of Times Top 100 companies are now leasing their IT Equipment.

2. “Our clients always pay cash” - Great, but do you actually see their cheque when it comes in ? - Often they are using a finance company without you realising and the delay in you getting the order is actually due to the client trying to source the finance. Also, Do you get the cash the same day you deliver the equipment ? Are you waiting 30 days or more for your money ? Do you have to handle payment and collection issues ?

3. ” There’s no requirement for finance from our clients as they never ask us for financing” - That’s because most companies still don’t realise that you can finance software ! Their banks/finance companies will happily finance their cars and machinery, and maybe even their Hardware, but as most lenders won’t consider funding software, many companies still don’t realise that it can be done.

4. ” We offer the manufacturers recommended finance scheme” - So you’re a Reseller, selling the same products as your competitors and offering the same finance scheme ? Wouldn’t you like another way to differentiate your offering ?

Aside from the obvious benefits to the client (including the tax benefit), you will benefit from:-

* Accelerated ROI - It’s easy to demonstrate this through the client paying for the system on a pay as you use scenario
* Shorter Sales Cycle - By bypassing budgetary constraints and offering a monthly option, many FD’s are able to sign this off without having to get board approval
* Increased Sales - By simply making the product more affordable, you will win more business and clients will be able to order more product from you
* Increased Profit - Clients are less likely to ask for discounts when offered a monthly payment rather than a large lump sum.
* Faster cash - You will be paid within 24 hours of the client installation

Many equipment vendors have now realised that by positioning a finance option to their clients, they are not only making the product easier to sell, but more importantly, it becomes easier to buy.

Here are some further tips that will assist in the process of increasing equipment sales:-

• Include a monthly payment option with every proposal sent out to clients. Don’t wait until the client has turned down the capital expenditure.

• Show the client how by paying for the system as they use it, they will see an immediate return on investment.

• Relate the monthly finance amount to monthly savings. Show how the equipment actually pays for itself.

• Reduce the cost to the lowest common denominator. Show the customer what the cost is per user per day.

• Avoid getting involved in a technical leasing discussion. You are there to sell the product. Call your finance partner whilst on site and they will be able to arrange something to fit the customer’s needs. This flexibility may be the final piece of the jigsaw to make the sale

• Use the credit application form as a signed order. When they sign this form, in their mind they have bought the equipment.

We have often seen clients coming back to us for funding, having been tempted by offers from other companies, which aren’t quite all they seem.

Therefore, we have put together a list of 10 basic tips that should always be considered:-

1. When comparing quotes from different lenders, always ensure the payment profile is the same, ie. number of payments paid upfront, as this affects the rate greatly.

2. Always keep a record of when the first and last payments are due to be made.

3. If the agreement is a finance lease, write to the funder / broker three months before the end of the agreement confirming your end of term wishes.

4. With any finance agreement, always ask the lender to confirm the end of term title fees in writing before you sign the agreement. Make sure there are no other “Residual” or “Balloon” payments due by you

5. When comparing rates, compare the total amount of interest payable. Different lenders have different methods to calculate their published rates.

6. Due to the considerable tax benefits, leasing can work out cheaper than paying cash.

7. Always ensure the schedule of equipment matches that of the equipment you are buying.

8. Brokers can save you time and money as they have access to a number of lenders and often can obtain better rates than single customers.

9. Leasing makes it easier to keep pace with technology - Most Leases have built in upgrade paths meaning you are able to keep up with technology, without always increasing your monthly payments.

10. Always ensure that you send the funder your insurance details to avoid them adding a premium to your monthy rentals.