Finance: Sustainability-linked loans launched

Richard Bearman: Help for entrepreneurs

Gen Y leads the way for start-ups

Millennials are leading the way when it comes to starting new businesses in the West Midlands, according to a start-up funder.

Start Up Loans – part of the British Business Bank – says that millennials (or generation ‘Y’) have taken up the majority of the loans it has issued in the nine years it has been operating (54 per cent).

That is based on offering more than 2,500 loans to unemployed people in the West Midlands since 2012, with the total funds pledged topping £11.3m.

Start Up Loans said it had continued to support would-be entrepreneurs during the coronavirus crisis, delivering more than £1.2m of funding in the region in the 12 months up to March of this year.

Richard Bearman, managing director, Start Up Loans said: “Start Up Loans is uniquely positioned to drive the nation’s investment in creative, entrepreneurial talent of any age, thanks to our extensive network of delivery partners and support services.

“As well as a loan, we support individuals with the practical steps they need to take to begin their own enterprise from writing business plans, accounting and marketing, as well as access to learning with partners such as The Open University.

“It is paramount that we do everything to empower the next generation of young working talent, who have an important part to play in unlocking the UK’s economic recovery, by giving them every chance to succeed, whatever their circumstances.

“Unemployment can have a catastrophic impact on an individual’s financial security, selfconfidence and ability to apply for finance from lenders, and the support provided by Start Up Loans can be of particular use to younger, less experienced business owners.”

Europe’s first sustainabilitylinked loans are launched

Virgin Money has become the first bank in Europe to link loans to business going green.

The self-styled ‘new disruptive force in UK banking’ says its sustainability-linked loans (SLL) will reduce the cost of finance for those businesses whose core activities are helping the economy become more environmentally friendly.

The scheme was developed by Virgin Money in partnership with Future-Fit Foundation, and is delivered through what is called an ‘environmental, social and governance (ESG)’ assessment, which basically questions a business to find out how ‘green’ it is.

The FF Foundation is a charity that wants to make the world economy more environmentallyfriendly.

Virgin Money, which brings together Clydesdale Bank, Yorkshire Bank and Virgin Money, says it is the only bank outside the ‘Big 5’ that boasts a genuine full-service personal and business banking capability.

Under the new loan initiative, any business that wants to borrow at least £250,000 and has a ‘sufficiently strong’ ESG assessment, any loan provided by Virgin Money won’t incur an arrangement fee.

Virgin Money has committed that five per cent of all its business loans will be to firms driving environmental and social change by September 2022.

To back up the initiative, Virgin has carried out a survey among the UK’s small to medium enterprises (SMEs), to find out how sustainability is to them.

Virgin says the survey revealed that a massive 85 per cent said it was important – but only 43 per cent of them had managed to put into practice. More than half (57 per cent) said that cost made it difficult for their business to be more sustainable. Graeme Sands, corporate and mid-market director, Virgin Money (pictured), said: “While businesses overwhelmingly recognise the importance of sustainability many, especially SMEs, struggle to translate good intentions into a clear plan and are worried about the cost and time involved in implementing an ESG programme. “This is why we partnered with Future-Fit Foundation, to help SMEs and other businesses manage and measure sustainability. “The benchmarking tool enables us to identify those businesses with capabilities that proactively drive other companies or consumers to create a more sustainable society and the loans will help these companies grow faster and help relieve some of the cost pressure.

“We firmly believe that we, and other banks, have a duty to direct capital responsibly.”

FF Foundation co-founder Martin Rich said: “Every business must play its part in solving today’s most pressing social and environmental challenges, not only to ensure we transition our economy to operate within planetary boundaries and to meet societal needs, but also because it makes sound business sense.

“Any organisation which fails to step up is at risk of losing its customers and potentially its licence to operate. Getting started can be daunting, not least for SMEs, which is why we’re excited about our collaboration with Virgin Money, who share our vision not only to make a positive impact but to help others do the same.”

‘We firmly believe that we, and other banks, have a duty to direct capital responsibly’

Borrowing falls as economy recovers

UK firms are now expected to slash their borrowing this year –and it’s all down to the economy rebounding more quickly than expected.

According to a new report into bank lending by EY’s ITEM Club, UK firms will want to borrow £19bn this year, down from an expected £26bn just last February.

The reduction is due to less money being needed for recovery purposes.

Banks lent businesses £35.5bn in net terms (including Covid-19related Government-backed loans) last year – an eight per cent yearon-year increase – primarily to help firms through the pandemic.

With the economy re-opening, growth in lending volumes is set to halve by the end of this year (to four per cent) and slow further in 2022 to 1.6 per cent, as businesses increasingly focus on repairing their balance sheets. These forecast figures are modelled on the Government’s strategy for easing pandemicrelated restrictions. The decrease in lending volumes has been accompanied by an upturn in consumer spending levels, to near pre-pandemic levels.

Anna Anthony (pictured), UK Financial Services managing partner at EY, said: “Given how difficult the last 15 months have been for millions of families and businesses up and down the country, it’s encouraging that the economic recovery will be quicker and stronger than initially forecast. That’s not to say though that there won’t continue to be challenges ahead.

“For the banking sector, the lockdowns have had a unique and divergent impact on lending volumes. While many businesses borrowed more than normal just to survive and millions of consumers repaid record levels of personal debt and borrowed less, these patterns will likely be relatively short-lived.

“The banks will continue to support businesses and households through the pandemic and beyond, but modest lending growth on some fronts combined with the ongoing very low interest rate environment means the pressures on profitability will remain front of mind for the sector for the foreseeable future.”

Dan Hurd: Temporary breathing space

Firms report drop in profit warnings

There has been a massive drop in the number of Midlands companies declaring profit warnings this year, despite the continuing coronavirus crisis.

According to a new profit warnings report by Ernst & Young's global strategy consulting arm, EYParthenon, Midlands quoted companies issued eight profit warnings in Q1 2021, a 78 per cent decrease from record levels in Q1 2020, when 37 were issued.

Nationally, Q1 2021 saw the biggest year-on-year percentage fall in UK profit warnings on record.

Midlands quoted companies issued the third highest number of profit warnings during the first quarter of the year, behind London (16) and the South East (10).

Profit warnings were pushed to record levels in Q1 2020 at the onset of the pandemic but began to fall from the middle of last year.

Most FTSE sectors saw significant falls in profit warning numbers at the start of 2021, as the global vaccine roll out bolstered the economy and earnings forecasts, according to the report. However, the continued withdrawal of forecasts by 15 per cent of FTSE 350 companies indicates ongoing uncertainty.

Consumer sectors are expected to benefit from a pent-up release in demand and household savings in 2021 — especially in the second quarter, as the economy re-opens.

A stronger than expected economic outlook, is also likely to boost confidence. There will be some issues to look out for though, not least inflationary risks, which will grow as the recovery gains pace, and monetary policy remains accommodating.

Perhaps unsurprisingly, the FTSE sectors issuing the most profit warnings in Q1 2021 were retailers (eight) and travel and leisure (five). When measured by the percentage of companies in a sector issuing a warning, the top FTSE sectors were beverage (22 per cent), personal goods (20 per cent) and retailers (17 per cent).

‘This is a time for UK business to reset and ready themselves to rebuild’

Dan Hurd, EY-Parthenon UK&I turnaround and restructuring partner in the Midlands, said: “Low levels of profit warnings are an indication of a temporary breathing space for companies.

“If they haven’t already, this is a time for UK business to reset and ready themselves to rebuild. The impact of the pandemic won’t automatically reverse when lockdown ends.

“For many businesses, pressures will intensify as they restart operations.

“With Government support set to taper away this summer, we are likely to see the start of three overlapping waves of insolvency in the UK.

“Companies which would have otherwise become insolvent in the past 15 months are back under pressure - the withdrawal of government support is also challenging companies weakened by the pandemic, and there are those companies which may be unable or too slow to adapt to rapid market change.”