Banks aren’t supporting credit easing for small businesses

On Tuesday 29th November 2011, the day that Chancellor George Osborne announced in his Autumn Statement that small firms are to get £40bn credit help, Clear Books had a £1 million small business loan application rejected by Barclays. The government’s initiatives are not filtering down to the big banks. The banks are not supporting small businesses.

Barclays told us:

Your business plan was well prepared and informative, and from the activity seen on your bank account, the business is growing at an excellent rate, and have no doubt it will continue to do so. The sticking point to obtaining sanction at the moment is the management accounts showing losses. I have no way of proving the loan can be serviced with losses showing. I would need to see a turnaround to profit on the financials, to stand any chance of getting lending facility agreed.

Losses and our balance sheet

So profitability, not cash flow, seems to be the issue. Could Clear Books be profitable? Yes. In fact, Clear Books will turn a small profit of a few thousand this month. However, when we keep adding a net 10% new customers per month this gives us the confidence to up our spend on recruitment and marketing, supported by a healthy cash balance.

Our shareholders have committed £250k to grow the business as aggressively as possible and hire new employees quickly. This injection was made precisely so that we could spend more than is generated i.e. so that we are able to operate at a loss.

The investment has taken the form of shareholder loans so our balance sheet does not look as strong as if our shareholders had made a capital investment. The reason for debt? More flexibility. The problems? Negative equity.

Whether debt or equity, existing financing has come from our shareholders who have a vested interest in the business succeeding.

It’s not only our business that will benefit

Not only are we a business that is growing and helping the UK economy by paying more tax and creating new jobs, but our online accounting software is an innovative accounting solution. Over 3,000 small businesses in the UK operate more efficiently and save time thanks to Clear Books. Startups also benefit from competitive prices as we charge a low monthly subscription fee rather than a large up front payment required by the likes of Sage for its desktop based accounting software.

What is the risk to Barclays? Zero

We applied to Barclays for an Enterprise Finance Guarantee (EFG) loan which is 75% backed by the government. In our business plan we proposed that one of our shareholder’s would guarantee the remaining 25%, leaving zero risk to Barclays.

What is our growth like?

• 3 year revenue ( 2009: £2k ) ( 2010: £50k +2400% ) ( 2011: £200k +300% ).
• 3 year total customers ( 2009: 100 ) ( 2010: 800 +700% ) ( 2011: 2500 +213% ).
• Clear Books is on track to more than double revenue again with over £500k forecast in 2012.

Does Clear Books need a loan of £1 million?

Clear Books does not “need” a loan of £1 million. We will continue to successfully build the business without a loan, however, an injection of £1 million would accelerate our growth and create jobs.

I am completely biased, but I strongly believe Clear Books is the type of business that would benefit from a government backed lending scheme. By growing our business we would give much more back to the UK economy: new jobs, increased VAT payments, payroll taxes and corporation tax. Then there is our software service itself which is helping other small businesses in the UK get more organised and competitive.

Would you loan money to a business like Clear Books or have you tried to get a business loan from a bank?