J’accuse! (I paraphrase) screamed the headlines in March this year. Interestingly, it was the Office of Fair Trading (OFT) that accused the banks of ’hindering’ small and medium-sized businesses (SMEs) from getting loans from alternative sources of finance.
Peer-to-peer lending has grown to become a big business. Operations like Funding Circle offer private investors a realistic rate of interest (around 6%) and then lend to businesses without fuss or delay. It’s quicker, cheaper, easier and even the government is itself lending £20m to British businesses through investing in the group, which has so far lent well over £220m without a bank in sight. So the government, the investors and the borrowers all like this win-win situation, but it seems the banks probably don’t.
The OFT found they were being pretty obstructive when their customers went to alternative lenders. Paperwork was delayed and banks were taking a long time to share information.
It is a bit rich, given that peer-to-peer lending found a niche in the market in the first place because banks could take their time and still turn you down if they didn’t fancy your fit with their plan.
An independent view
Laurence Haring, who has an interest in four forecourts (he has two freeholds that he leases out and two leaseholds) would agree with the OFT. He also runs point3consultancy.com which offers advice on many aspects of business.
He says: "Banks are still being extremely difficult to deal with in general, and especially within retail. Unsecured lending to business is a thing of the past with personal guarantees (a minimum) up to around £25,000-worth of borrowing. At these levels, they aren’t looking for debentures over the company.
"They are remaining extremely vigilant on uncleared effects too. Many banks work with a traffic light system (green is good) and petrol forecourt stations are very firmly in code red! Look at the Lloyds Bank recent advertising on TV. The petrol station closes as it was making no money and reopens as an American diner!"
Haring adds that he has seen overdraft rates as high as 16% with the Big Four where the words "mitigating risk" are used instead of "racking up rates" and overdrafts are repayable on demand.
"A forecourt I deal with has no overdraft facility; however from time to time, in the morning, the account would be in overdraft but when credit card money arrived later in the day, the account would go back into credit the bank advised that the account was being mismanaged."
The bank manager said his other forecourt client (who happened to have a £100,000 facility) never went over the limit. He was classed as a better risk than Haring’s client who only tipped over in the morning but rectified it by the afternoon. "This is the madness we are dealing with," Haring says.
The cost is on the cards
Do you take plastic? Of course you do. According to the Petrol Retailers’ Association (PRA), nearly 70% of all transactions on a typical forecourt site are made by card.
Over the past year the PRA has been actively researching this subject and has appointed Gordon Balmer of Fuel Card Insights, an independent consultant who previously worked on the fuel card side of BP.
He says: "We have been engaged with HM Treasury, EC and the UK government to lobby for a reduction in the charges associated with cards and also for fairness and transparency. We are now awaiting the outcome of deliberations on this matter from the EC."
And credit and debit card costs aside, Gordon Balmer, as his company’s name suggests, is about to turn his focus onto fuel card costs. The specific issues are the margins which have remained the same since the scheme started, the growth of the cards and some activities of the main cards issuers.
It would seem that, because of a lack of transparency, there is therefore a misunderstanding of the part that fuel cards play in the overall equation and the potential pitfalls (nice volume, shame about the margin).
So far, it is a case of watch this space
A way to save
Sometimes your supplier may have done a group deal on banking charges. PayPoint has and says its deal with Barclays enables retailers to save between 40% and 69% on standard business banking costs.
Spokesman Peter Brooker says: "We currently have just over 1,750 forecourts in our estate (around 7% of the total). These include groups, such as Pace, Texaco and Murco, as well as indies and symbols."
He adds: "This tariff (in table above) is limited to retailers with an annual turnover of less than £1m. Other banking services are charged at the Barclays Business bespoke tariff. Banking services are available at the discretion of Barclays on its normal terms and conditions.
"Obviously, many retailers pay more than the Barclays rates quoted here, so discounts for them will be greater."
Brooker also explains PayPoint’s recent ’net settlement’ feature.
"Whereas previously, payments to retailers for the sums they pay out on CashOut, Western Union or through self-fill ATMs were made separately to collection of the cash paid from bill-paying and top-up customers, amounts paid in are combined with amounts paid out to create a net amount that the retailer needs to deposit each day. So, for example, if £1,000 in bill payments has been collected through bill payments on Monday, and ATM withdrawals and CashOut payments amount to £250 on the same day, the retailer will only need to bank £750. For some retailers, especially those with high transacting PayPoint cash machines, this has resulted in a net payment into their bank account on some and even most days."
He says that, while net settlement is not, strictly speaking, a financial service, it does have the effect of potentially saving retailers hundreds of pounds a year on banking charges, depending on the amount of business they do with each of the PayPoint services they subscribe to.
The savings come not just from reduced deposits into the bank by the retailer, but on banks’ charges for payments into their account, eg, reimbursements for the cash paid out via ATMs, CashOut and Western Union.
Borrowing to invest
Of course, if you are a big business with the potential to become even bigger then the bank will be an ally.
Current Forecourt Trader of the Year winner Euro Garages, with 179 sites, had a consortium of banks lending it the money to buy a clutch of Esso sites. And if your plan is good enough you don’t have to be as big as Euro Garages.
As Forecourt Trader reported in February, Exelby Services (five sites) secured a £4m finance package from HSBC to support the £6.5m development of its new filling station services and truck stop on the A1M at Leeming Bar, North Yorkshire: a project that was 10 years in the planning.
Rusdene Services, with six sites, did a knock-down rebuild of its Meon Hut Service Station at Petersfield in Hampshire last year with money borrowed from RBS, with whom the company has banked for more than 20 years.
"We had no problem convincing the bank with regards to the lending of the money, as it is often them approaching us to see if we want to borrow money," says managing director Oli Lodge.
"This is mainly down to the fact that we are an asset-based business with hardly any borrowings, so a pretty safe bet for the bank. We have a proven track record, and the bank has obviously seen our accounts on an on-going period for some time, so getting the bank to lend us the money was no problem; the process that followed however was incredibly hard work."
He explains: "We borrowed the money under the government’s funding for lending scheme, which has no arrangement fee. The rate is then purely a negotiation with the bank. Since the 2008 banking crisis the process of ’risk assessment’ that the banks seem to need to go through was very long-winded, and the rate at which we could borrow the money was based upon before and after development valuations carried out by an independent agent.
"Of course, a large part of the problems pre-2008 was caused by rather zealous agents overvaluing stock to maximising gearing potential. As a result, the valuations came back very conservatively to say the least.
"I could be very cynical and say that this actually suits the banks, because they are then able to turn round and say that the rate will be higher than previously agreed, but this is not our fault, it’s purely down to the valuations which is pretty much what happened in our case at West Meon."
Tips from the experts (taken from files built up over several years and some things just don’t change)
A business plan is key, not only for the bank, but for your own business: it will clarify your objectives and set a strategy.
The plan should include your local knowledge of the market and of the competition and it should be realistic, pointing out the risks and the strategies for overcoming them.
Don’t ask for too little. You don’t want to have to go back for more.
Provide clear cash-flow forecasts proving you will be able to repay.
With any type of bank borrowing, you will be asked for business plans and cash flows. When producing monthly cash flows it will never show the daily peaks and troughs of your actual bank account. Banks fail to see this, so it is worth highlighting.
For any retailer with a limited company where no fixed/floating debenture is in place, if you have invested money into the company personally, there is nothing stopping you taking a debenture out over the company yourself to protect your investment in adverse circumstances.
If you need to switch banks frequently for free or reduced banking costs, do it.
If a bank makes an error on your account, don’t forget to charge them £35 administration fee for this. As Laurence Haring likes to say: "What’s good for the goose is good for the gander."
To sum up this feature as RBS boss Ross McEwan said in February when announcing annual losses of £8bn for 2013: "We are the least trusted company in the least trusted sector of the economy. That must change."
We all eagerly await signs.