Finance still critical

I found some interesting research recently that reported on the issue of banks not just refusing to lend but seeking to change original loan terms, which was directly in line with my experience.

One SME business that I am advising approached their bank to extend an overdraft in order to buy out a director and secure succession for the business but found that this request was not only refused but the original overdraft was reviewed and withdrawn.

The results from the Mishcon de Reya survey suggest that this is not an isolated problem with more than half (51pc) of respondents saying that their biggest issue with their lender involved attempts to increase margins on loans, while 41pc identified additional fees.

Clearly there are not enough alternative sources of finance available and we are facing a significant funding shortfall unless non-bank finance channels are opened up to small and medium-sized companies.  This view was expressed by Mr Breedon, who led the government backed taskforce into bank lending.  He also predicts that the shortfall could be as much as £191bn within five years.

SMEs are constantly referred to as the driving force behind the UK’s economic recovery with figures from the FSB suggesting they are responsible for 48.5 per cent of the UK’s turnover but without support they cannot deliver much needed growth.

I hope that the professional bodies and organisations that represent the SME sector will continue to lobby government on this matter and that some of the recommendations made in Mr Breedon’s review will be progressed.  In the meantime our experience is that more and more businesses are now looking into peer to peer lending which, whilst potentially being more expensive is proving to be easier and quicker to implement for smaller SME’s.

Incidentally there was a happy ending for the company used in the example above, after finding an alternative source of finance, their bank  had a change of heart and was able to offer the required extra funding after all, proving that it is always worth challenging the banks decision in these circumstances.

Who will fund residential care as the elderly get older?

There are plenty of statistics available to illustrate that we are all working and living for longer.  Whilst this may at first seem like a good thing there is a consequence on how residential care is funded that was brought home to me when I recalled one of my first experiences as a new treasurer of a charitable residential care home in 1996.

The occasion was a party for a  resident that had reached their 100th year.  We invited friends and relatives and the Mayor called in to make a fuss of the individual concerned. As an interesting aside, whilst at first it was quite rare to have a centenary celebration I have noticed that these are increasingly becoming a regular fixture in our calendar. However at that first centenary celebration I enquired from our staff how long the lady concerned had been a resident at the home and was advised it was a mere 42 years! The thought that at the age of 58 she was put into a care home in this day and age is absolutely unthinkable but I would imagine in those days it was quite the norm.  Without knowing the details, I have always imagined that probably her husband died and the children say “that's it mom, now dad’s gone we will sell the house and put you into a home”.

Since then the world has changed immeasurably in terms of people coming into care and without having the figures to hand I would imagine our average new resident coming in is probably in their late 80’s or even 90’s and when they get to us they do require a very high level of care compared to the basic residential care which I would imagine that lady was provided with all those years ago.

Many care homes now have to ask for top ups as the gap between the amount the local authority is prepared to pay and the economic minimum needed to maintain a place in the home has grown. In reality, the people that bear the costs of these top ups is invariably the children of the resident.  As residents become older and older it is the children who are being called upon to find the top ups and they are themselves retired and pensioners. Bearing in mind by definition, if their parents are being funded, they have not got significant assets of their own so these are not families who have any great expectations of inherited wealth.

This phenomenon is latterly going to be more and more prevalent as we are told that middle aged people today stand a better than even chance of making 100.  These people are likely to go into care in their mid to late 90’s by which time their own children could be into their 70’s, they could even have grandchildren of 58 and above, the age of my first centenary resident when she went into care!