We’ve all seen the headlines. In the current economy, many businesses have tried unsuccessfully to raise finance. Their experiences have varied with lots of “flat no”, some “protracted maybe” and very few “definite yes” responses from lenders. The financing prospect for many businesses looks very bleak:

• Banks continue to strengthen their balance sheets. Lending is available, but is much tougher to achieve with higher rates, more security needed and more ‘setup’ or ‘consultancy’ fees than ever before.
• Government loan schemes have had a very low take-up, with demanding information requirements.
• Reduced trade credit insurance limits have increased debt requirements just to maintain existing trade.
• Venture Capital firms have focused on recovering lost value in their existing portfolios. Many funds have dried up.

According to a recent survey by the Institute of Directors, nearly 60% of UK businesses were refused credit by their banks last year, despite the government’s efforts to boost lending. The survey found that 57% of businesses were denied money, and 20% used credit cards to finance their business. The report contradicts recent claims by banks that they are lending to companies that need finance.  Recent editorial in The Daily Mail took a blunt view with headlines such as ‘SMALL FIRMS LEFT TO STARVE’ and ‘IN PROFIT BUT BANK SAID NO’ and ‘WE’VE HAD ZERO HELP’.

On the 19^th of February, the Bank of England revealed that bank lending to businesses fell by a record 8.1% last year. It also said that lending to businesses ‘fell across all the main sectors’ for the third successive quarter’.

John Wright, national chairman of the federation of small businesses said that many firms faced huge problems in raising capital.

Economists, business associations and some high-profile business leaders seem to agree that 2010 will be no different, and businesses should not expect a return to 2007: businesses need to get used to the new economic environment.

Behind the headlines, the reality is that all of the banks are desperate to lend more money to increase their profits, BUT their credit departments have raised the bar in terms of criteria and commercially they have increased their prices. So, better-presented business cases are essential.

Another perhaps surprising aspect of the current situation is that entrepreneurs and business leaders with good business cases often don’t trust the banks, and so hold back on their true business growth plans.

So, despite their thirst for more business, banks are making it harder for entrepreneurs to borrow, and entrepreneurs are being more cautious about expansion and investment, especially when this is on borrowed money.

So what can you do to maximise your chances of raising finance in the new economy?

Well, the general views of those in the finance business seem to be saying that businesses need to get much smarter about where they look for finance and how they ask for finance. The days of simply relying solely on your local bank have gone – you need to be prepared to look at other banks, other options. And whatever options you look at, they all have one thing in common – they are looking for solid business cases, with good data to support your case and evidence of having the right talent in place to achieve your goals. It seems that many business owners are woefully ill-prepared when asking for financial support – from their bank or from any other source. Simply relying on your trading history just doesn’t cut it any more – lenders need to see a good business case and have confidence that you’ll achieve your goals despite the current economic situation. It’s never been more important for your business to stand out from the crowd – so you need to have your case more prepared than ever before.

Guide to Raising Finance in The New Economy

Vistage is the world’s leading Chief Executive organization, with over 15,000 members around the world. To reflect this new economic landscape we’re now in, we’ve produced a brand new UK Guide to Raising Finance in The New Economy that tells you what your options are and how best to present your case for business finance. To download your copy, simply visit www.neweconomyblog.co.uk/rf5 and fill in your details.

I wish you the best of luck if you are currently searching for business finance. I hope that this brief article helps a little, but be sure to request your copy of our new Guide to Raising Finance in The New Economy – it has much more detail and tips that might help you.

Best of luck

Steve Gilroy
Chief Executive
Vistage International (UK & Ireland)

At Vistage, our role is to make our members better leaders. Below you will find a white paper that we’ve produced that suggest what business leaders should be focused on to succeed in The New Economy. I hope that you will find it valuable in planning the future for your business. I welcome your thoughts, comments and suggestions.

The report also said that December was the fifth successive month in which hiring of permanent employees grew and that temporary staff placements also rose during the period, to a 30-month high. So have we really turned the corner, and is UK PLC now into hiring mode again? I don’t think so.

I’m as happy as anyone at the good news, but I think it’s important to keep these developments in proportion. The reality is that I don’t expect overall unemployment levels to improve markedly in the short-term and, unfortunately, I think we have some further pain to endure in the coming months.

Trends in unemployment tend to lag behind underlying changes in the economy. We’re now hearing news of ‘green shoots’ and the ‘start of the recovery’, prompted by surveys such as that from Deloitte this week which showed confidence among finance directors at its highest for more than two years. However, there are still plenty of businesses out there that may not survive the year or still have tough decisions to make. And, of course, when government spending comes to a crashing halt, as it surely will in the next two years, the ripple effect will add to unemployment levels, especially among public sector workers.

Although, as the Report on Jobs indicates, companies which made deep cuts in their workforces early in the recession may now need to re-staff, I suspect most will do so very carefully – using self-employed, contract and temporary labour where they can.

The number of workers in these categories will therefore grow this year, as they make major contributions in all sectors of industry – this is a trend that I believe will continue.

The days of ‘one job for life’ have now truly gone and many roles can be flexible in their nature. If they’re planned well, new flexible employment arrangements can therefore suit both workers and employers.

One group to benefit from this trend could be the many retired people the recession is prompting to re-join the labour market, as many of them are specifically seeking part-time and flexible roles. Their availability could also be a boon for employers, especially in sectors such as manufacturing, as there are many highly-skilled operators among these aspiring returnees.

At the risk of going off at a slight tangent, it’s also worth pointing out that big changes are taking place in the means of hiring workers. In general, employers are finding that technology, the internet, social networks and personal recommendations or referrals are very effective and much cheaper than traditional methods of recruiting. Specialist recruitment agencies will still have a place in the future, particularly for employers seeking scarce skills or filling niches, but I do foresee a significant move away from traditional print advertising for recruitment in the months ahead.

So what does the next 12-24 months have in store for the UK job market? Do you see employment growing or contracting? And what is your view on new employment formats, and recruitment methods? Has the world really changed, or is it just another cycle of more of the same old things?

Let me have your thoughts, and any specific examples that you have to detract from or backup my points above.

As part of what we at Vistage call the New Economy, we’ve already identified a series of characteristics that brilliant business leaders of the future will have to exhibit. Here are some of them and I though it might be fun for you to assess the extent to which they apply to the prime ministerial candidates vying for our votes…particularly if you haven’t yet decided where to put your cross on the ballot paper.

Setting the Strategy and Vision: These are often confused…but whereas strategy sometimes has to change, the vision should alter only rarely. In tough times, it’s particularly important for leaders to be visible, providing a clear direction and communicating it consistently to their people. Brilliant leaders make it clear that a few diversions won’t stop them reaching the intended destination.

Communicating: Brilliant leaders are top quality communicators, though not necessarily orators.   They get out among their people and show them how their efforts connect and why they matter, reminding them of the benefits achieving the vision will bring to them and other key stakeholders. They interpret current events and place them in a context that’s meaningful, relevant and motivating. In a nutshell, they get out, communicate and inspire.  

Demonstrating Priorities: Brilliant leaders demonstrate overall priorities by how they spend their own time. Having articulated the vision, they reinforce it and focus their own efforts on the area in which they can make the biggest contribution to its achievement. They then invite the same discipline of people reporting to them and the behaviour is thus cascaded throughout the organisation.

Establishing Trust and Loyalty: Getting the most from colleagues involves them delivering their best discretionary efforts…which means them being motivated to go beyond supplying the merely compulsory. Brilliant leaders provide the platform for this by developing trust – through openness, fairness, reliability and recognising the contributions of those working alongside them to achieve the vision. By building trust leaders also develop loyalty from their colleagues, and this in turn brings commitment and passion.    

Those are just some of the abilities we see making brilliant leaders in the future. If they’ve helped in deciding your political preference, we’ve obviously performed something of a service!

Now, why now let me know your views? No, not about whom you plan to vote for, but whether you agree that all these qualities will be vital in the business leaders of tomorrow and what other qualities you see as being essential in the New Economy.

I look forward to seeing your responses and wish you a very prosperous 2010.

Those who did make deep cuts in their workforce early in the recession may now need to re-staff, but with the peaks and troughs of the W-shaped recovery Vistage UK’s top speaker and leading economist Roger Martin-Fagg predicted, it seems many may do so carefully – perhaps using contract and temporary labour where they can.

Indeed, I think these groups will have a major contribution to make to all our industries in the new economy. The days of ‘one job for life’ are becoming a distant memory. Many roles can actually be flexible in their nature, and if planned well, can work for the employee and the employer.

I think we can all expect to see a marked growth in flexible working, part-time, self-employed and contract labour, and from listening to our members, I think we will also start to see more of a shift in the way businesses will recruit – with technology, the internet, social networks and personal recommendations or referrals coming to be seen as cheaper alternatives to traditional means of recruitment.

There is no doubt specialist agencies will still have a place and anyone focusing on a special skill area or niche will still have a role to play but, with the coffers being far from full, traditional print recruitment advertising may become a thing of the past for many businesses – at least for the time being.

What do you think? Do you see any changes in the way you will staff your business?

Mr Posen’s main area for concern is the possibility of the Government reducing significantly its current level of support for economic activity before the financial system is fixed. He believes the result would be a shortage of credit for small and medium-sized non-financial enterprises – the types of business which benefit most from Vistage services – and this mismatch between supply and demand could trigger the double-dip.     

In warning of a further slide downwards, Mr Posen is aligning himself with Vistage UK’s top speaker and leading economist Roger Martin-Fagg, who predicted some time ago that the recession would be W-shaped, with a further period of decline following a temporary upswing towards the end of this year, which would be largely due to businesses re-stocking.  

We issue Roger’s bulletins on a regular basis to help members navigate their businesses through the currently turbulent waters. It appears that his prediction about the shape of the economic curve is now being echoed by a key person within the institution heading the UK fleet.

Very unfair, of course. The fact that we, at Vistage UK, believe in economic forecasting is easy to see – just look at the regular predictions we issue, prepared by Roger Martin-Fagg, one of the best practitioners around.

I was reminded of that old insult, however, when I read reports this week that the Ernst & Young Item Club believes the UK economy is already out of recession. That view is expected to receive backing later this week when the Office for National Statistics announces economic output was either flat or headed upwards in the third quarter of the year.

Before you rush out to celebrate, however, be warned that not even the comparative optimists of the Item Club are suggesting choruses of Happy Days Are Here Again are appropriate yet. They expect the economy will “bump along the bottom” for the next 18 months or so, growing by a mere one per cent next year, compared to the almost unprecedented 4.5 per cent collapse in output during 2009. They also say interest rates will remain very low for many years, as the economy struggles to regain full power, following the recent problems. 

The Item Club’s view does contrast pretty starkly with that of Roger, however, who predicts GDP growth will actually be W-shaped, with a slight recovery this autumn being due to restocking and proving strictly temporary, as households and companies continue reducing their debt in the months ahead. He says that by 2012, the UK economy will be no bigger than in 2005.

If that hasn’t made you depressed enough, Roger also believes that: unemployment, particularly among the under-25s, will keep rising; credit will continue being hard to obtain and expensive, with the era of cheap money not returning until 2017; the high level of business failures will be maintained; and there’ll be no resurgence of commercial or residential property prices. I could go on, but there may be sharp objects around…I think you get the drift.      

There’s therefore clearly a divergence of view between the Item Club and experts like Roger, over the shape of the curve in the foreseeable future. So it would be fascinating to hear how things look from your viewpoint: do you agree with one of them or hold a completely different view? Why not drop us a line and let us know?

Economic Update

Vistage UK speaker Roger Martin-Fagg has released his October 2009 economic update for the UK, available to Vistage UK members

In the report Martin-Fagg says there’s no quick, or even slow-paced recovery on the horizon. He projects a “W-shaped” recovery. In this scenario the UK will have a second leg of decline, not quite as severe as the first leg. That second leg will come as the government money tap (i.e. quantitative easing) is turned off.