For the first time since regional records began in 1997, London with 758,000 enterprises in 2007 had more enterprises than any other region or country in UK. In the UK as a whole, SMEs account for over half of employment (59. 2 per cent). Out of all the UK regions and countries London had the lowest share, where SMEs only account for 47. 6 per cent of employment. For the South West, Wales and Northern Ireland, this figure exceeds 70 per cent (See Figure 3). Commonly, the UK banking industry structure is conformed by large four “retails” banks which are Barclays, HSBC, RBS-NatWest, and Lloyds-TSB known as ‘The big four’.

All of them are typically commercial, profit-making organisations that offering the wide range services, from retail banking to investment banking. The big four banks hold approximately 84% of the market share between them with roughly equal distribution (Lund and Wright 1999). In the early time of the financial boom, banks were lending money out easily with less concerned on credit constrained and fewer requirements when checking the customers’ credit history.

According to Ivashina and Scharfstein 2008’s research, banks that have access to deposit financing cut their lending less than banks with less access to deposit financing as well as focused on short-term loans rather then long-term loans. Furthermore, a reduction in lending does not, by itself, show that there was a decline in the supply of credit. It is possible that the current recession and general economic uncertainty causing reduction of the demand for credit by corporate borrowers.

Lending fell across all types of loans – those used to finance buyouts and takeovers as well as those for real investment. Based on the UK literature on bank lending relationships, UK banks categorised the lending into small, medium and large companies through two approaches which are gone and going approaches. For SMEs lending bank are more likely to adopt a gone concern approach (security based lending approach) whereas for the large companies banks tend to use a going oriented approach (looked on future earnings) (Berry, A. et al, 2003).

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The main concerns of the SMEs are the difficulties in accessing broader range of external financing and an unfavourable business environment for entrepreneurship and growth. Today, most of the SMEs depend on bank loans and informal finances, such as friends, family and business partner. Newly created firms along with the companies that are developing knowledge are the ones that have the most difficulties, as they lack of tangible assets to offer as security while raising external capital. Scarborough et al. (2006) argued that personal savings are the most important and the least expensive source of funds to set-up a small business.

Angel investors (private wealthy investors who invest in business start-ups) are one of the vital sources of financing for SMEs at start-up and early stages of the company (ibid). Banks can issue both short-term loans (i. e. commercial loans, overdrafts, line of credit), and medium to long-term loans, (i. e. term loans, instalment loans, discounted instalment contracts and character loans) (Scarborough et al. 2006). SMEs can also obtain grants, allowances, cheap loans and prizes from the public institutions (Williams, 2007).

For instance, the UK government supports particularly the start-ups and highly growing enterprises, through the Small Firms Loan Guarantee (SFLG) (Fraser, 2004). The following financing schemes are also available for the UK-based SMEs: The Enterprise Investment Scheme, Venture Capital Trusts, Early Growth Funds, Regional Venture Capital Funds, National Business Angel Network, Selective Finance for Investment, UK steel Enterprise, The Countryside Agency, The prince’s Trust and Grant for Research and Development (Stocks et al. 2006). Furthermore, foreign alternative trading platforms is another way to raise funds.

For example, a UK based SMEs can be registered and publicly traded in a German based stock exchange. Basically, the main factors which encourage SMEs to use foreign capital markets are namely the low Initial Floating Cost (IFC) and the ongoing obligation costs. Factoring is another means of financing in which SMEs sell their debts to a debt factor in exchange for instant liquidity (Stimpson, 2004). In contrast, big companies mainly prefer bank loans to remain its cash flow, the so-called loan syndications, which is the primary source of loans for large corporations.

Syndicated loan is a large loan in which a group of banks provide funds for a borrower. Commonly, a lead bank would get a percentage of the loan and syndicates as well as sells the rest portion of loan to other banks and other financial institutions (Wikipedia, 2009). This market is the centre through which banks and other financial institutions lend to large corporations. However, the existing recession cause banks are unable to lend money out. Consequently, they are looking for another optional to retain their liquidity by raising their cash via bond issues (exp. Tesco Hypermarkets).

According to Tesco Company, Allen 2007 argued Tesco, Britain’s biggest supermarket group indicate its optional to increase the cash flow by issuing a landmark 50-year corporate bond, issued by Deutsche Bank in February 2007 according to the i?? 500 of debt which Tesco could not paid off. Interestingly, managers finished their all selling bonding in only just two hours. From this situation, it was seen that there was a high demand on Tesco’s bond depend on several attractions. Firstly, Tesco have strong balance sheet, Secondly, Tesco’s property portfolio analysis have value at up to i??

20bn. Thirdly, The Tesco bond is the semi-annual fixed-rate bond which pay twice a year at a yield of 5. 23%, compared with 4. 06% on the equivalent government bond. Besides, Tesco issued bond with syndicate team at Deutsche Bank, which was one of the lead managers on the bond. Furthermore, based on Tesco business mainly sells food to consumer, food is the critical products that consumers always have to consume. Accordingly, Tesco has a stable business and a substantial market share including good name recognition with rated A+ by the credit agency Standard & Poors.

Although this is a very long-term bond which will pay the lenders back in 2057, all of these attractive factors cause investors trust and willing to buy Tesco’s 50 year bond. Consequently, it raises i?? 500 million to Tesco through long-term bond which provide Tesco an opportunity to refinance existed debt. Later in 17 February 2009, Tesco announced new bond issue which consist of three tranches: i?? 600 million aggregate principal amount paying 5. 125% interest and maturing on 24th February 2015, 600 million aggregate principal amount paying 5% interest and maturing on 24th February 2014 and 900 million aggregate principal amount paying 6. 125% interest and maturing on 24th February 2022.

Tesco will use the net profits of the offering to refinance certain short-term debt (Reuters UK, 2009). Interestingly, all types of enterprises used leasing as a financial techniques which allows a company to rent specific equipments for a long period of time without having to buy them (Moez, 2008). As Barry Ross, head of corporate restructuring at Pricewaterhouse Coopers, says: “At the time of growth people tend to focus on profit and in a time of downturn people tend to focus on cash”.

The biggest problem that the small and medium-sized enterprises faced is the lack of cashflows. From one side is the problem with the banks lending and tougher borrowing conditions, which considered SMEs as more risky investment. On the other side, the global financial meltdown has prompted large companies to further tighten supplier payments to improve their own cash flow and because the SMEs are large companies’ suppliers, the late supplier payments increase the risk of their failure.

In December 2008, the UK launched a Prompt Payment Code, through the government’s Department for Business Enterprise and Regulatory Reform, “to help increase the speed of payment of smaller companies”. According to Bacs, a non-profit payment industry body in the UK, big businesses owed a massive i?? 18. 6bb in the late payments to small and medium-sized enterprises in 2007, up from i?? 16bn in the previous year and also 80% of small and medium-sized firms were not exercising their legal right to charge interest on late payments.

Tesco, the UK’s largest supermarket chain, has told local non-food suppliers to expect payment in 60 days instead of the usual 30 days (Ethicalcorp, 2008). With the exception of current accounts, the services that are used by small, medium-sized and large companies shown in Figure 4 below, tent to be a function of a number of factors: the size of the company, the country in which it is based and the market in which it operates. From the available information is seen that, the bigger the business is the greater the range of financial services used by that business (Berry, 2006).


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