SEIS – Tax relief for SME investments – Business finance solutions

The feel good factor is back – is it built on sand?

5208470863_f3f7867542What a great week for UK business.  Fantastic weather, three great sporting achievements, house prices are going up (allegedly), low interest rates are going on forever (?) and we all feel pretty good about the future – me included.  Even the IMF has lifted their growth forecast for the UK.

1. Other matters

There are of course a few other matters to take into consideration, like weaker retail sales in June, more high street failures, a weak (very weak) Eurozone with continued threats of failures and bail outs for Italy, Spain, Portugal and Greece, a fragile US economy that is contemplating the ending of QE and a shrinking Chinese economy.  Possibly there is no export led recovery at this time?

2. Where we really are

I think we are going through an extended period of bouncing along the bottom and things could go either way, dependent as much as anything on external events.

However, medium or average news doesn’t sell newspapers, so it is no surprise that in a matter of what seems weeks, we have gone from the grind of more and more depressing news to hallelujah the business messiah has landed and everything is OK!

In my opinion there is nothing wrong with this, other than the fact that we must recognise it for what it is.  There is only so much capacity in the UK (and the world), and we need to try to utilise this for the benefit of all.

If the rest of the world is at a standstill, we have to accept that the demand created in the UK will continue to be consumer led (60% I believe), and that this will be entirely dependent upon sentiment and, most importantly, THE AVAILABILITY OF THE CASH OR CREDIT to buy the stuff.

3. Events leading to the Global financial crisis

This is where we started in 2004-7.  Access to finance was exceptionally good.  It didn’t matter if you borrowed as a consumer, because your house price was going up and there was always another offer of free credit coming through the letterbox.  It didn’t matter if you were a business owner needing to borrow to invest because the value of both your house and your business was going up and the banks were competing to provide you with the business finance.

4. Turnaround strategy

So, in my opinion, nothing much has changed here in terms of the economy and all of the stuff that has been done by the Treasury and the Bank of England to create more business finance solutions, from Project Merlin to Credit Easing to Funding for Lending 1 hasn’t made much difference.

This is not a criticism, just a matter of fact.  I don’t believe there has been an obvious turnaround strategy staring George Osborne in the face that he has deliberately ignored.  Given the magnitude of what happened, there was a price to pay for the excessive credit-led boom of the early noughties and the turnaround plan has been based on the least worst options.

5. Availability of Funding

It is no coincidence that the moment that Funding for Lending 2 with increased mortgage availability and government guarantees for mortgages came in to play that we all start feeling better and buying more stuff.  This gives business owners more confidence and we start to see the slow movement to growth.  My point is that business funding solutions are still difficult to come by; the current  increase in confidence is emanating from external feel-good factors and government’s support for the housing market.  I hope this potential recovery of our economy is not built on sand, or to use a construction analogy, footings.

6. Where do we go from here?

It is fragile. We are still exposed to the travails of the Eurozone and, of course, the rest of the world in terms of major economic and/or political events.

Lest we should forget, the last financial crisis went like this:

  • 2003 – Financial regulation starts to become low touch
  • 2003 – House prices start to rise 
  • 2004 – Banks lend money to everyone and grow their balance sheets to gargantuan proportions
  • 2004 – Businesses and consumers take advantage of this wall of credit
  • 2005 – Investment bubbles are created in the search for new asset classes.
  • 2006 – Markets overheat
  • 2007 – Bubbles burst
  • 2008 – Banks get bailed out by taxpayers
  • 2008 – Free market economy principles cast aside – Moral Hazard
  • 2009 – Long period of pain including recession, depression (both kinds) and deflation
  • 2013 – Financial regulation starts to become low touch…
  • 2013 – House prices start to rise…

If the continuing lack of availability of funding is affecting your business, please contact us.  We are specialists in this field and can hopefully point you in the right direction.

As always, if you have any comments or any of your own experience you would like to share on this subject, please contact me at or on 0845 689 8750.

Image by: Nikonsnapper