Small Businesses Self-Finance 
According to recent research, more than a quarter of entrepreneurs have been forced to turn to friends and family for finance for their business, while more than 10 per cent have re-mortgaged their homes.

Rising prices and the cost of business financing are adversely affecting the private lives and personal finances of many SME owners, according to a new study by the Centre for Economic and Business Research.

The research was conducted among owners and managing directors of 750 UK small businesses with twenty employees or less and reveals that almost half of small businesses have had no choice but to inject additional cash into their company from personal sources this year.

The vast majority of small businesses currently view the UK as an “unbearably expensive'” place to do business and many are finding they can only survive by supplementing the company with personal finances.

Almost a third have had to turn to personal sources for a loan to cover spiralling costs, while around a quarter have taken out a personal overdraft, bank loan or credit card specifically for a cash injection into their business.

Some small business owners have been pushed into even more extreme measures, with 13 per cent going as far as re-mortgaging their homes.

It is hardly surprising news to find that small business owners are self-financing, as according to a recent FSB member survey, of the 20 per cent of small firms that had applied for credit in the 12 months to June this year, a third have been refused.

According to the research, the average amount raised from all personal channels stands at just over £20,400 per business. However this figure is much higher in some sectors, such as dental and medical surgeries, whose borrowing averages £120,000.

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Banks to Hit Lending Targets But Not For SMEs 
Figures out last week show that the top five banks will hit the targets set for them under the Project Merlin agreement but have fallen woefully short of the lending expected to SMEs.

The banks said they had lent just over £100bn to UK businesses in the first half of the year against an annual target of £190bn. But lending to small and medium-sized firms was only £37.4bn, compared with an annual target of £76bn. However, Barclays indicated that the current account balances of UK small business customers have increased by 41 per cent this year.

And as far as SMEs were concerned, Lloyds just beat its small business target, lending them £6.8bn, RBS said that it had lent £15.5bn and HSBC fell short.

Lending is not the only aspect of the Project Merlin agreement to be important in the relationship between the banks and the private sector. Adam Marshall, Director of Policy at the British Chambers of Commerce said:

"Targets only tell part of the story, what is absolutely critical is to see relationships between SME's and lending institutions rebuilt and to see trust and transparency improve,” he said.

John Walker, National Chairman of the Federation of Small Businesses said of the figures:

“... targets do not address the underlying problems in the banking sector, where only a handful of banks control the majority of the market.

With global economic and financial fears, it should not be about meeting targets but about genuinely helping businesses start-up, grow and invest to help to put the UK recovery onto firmer ground.

The FSB is urging the Independent Commission on Banking to be bold in its recommendations to government in September and to ensure that increasing competition in the sector is at the forefront of its report - without this, small firms will continue to get a rough deal.”


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Retirement Age Change A Potential Pitfall For Employers 
With the announcement yesterday that 20 year-olds are three times more likely to reach 100 than their grandparents and that by 2066 there will be half a million people aged 100 or more, ministers and employment experts are warning that pension reform is vital.

Add in that the default retirement age will be abolished this Autumn and you have a potentially crippling bill for some employers who are not prepared for the changes.

An employment survey has found that, of the businesses currently offering death in service benefits or private health cover, some 57 per cent did not realise that the cost of providing these would probably soar for those employees aged over 65. And 54 per cent said they would no longer honour those staff benefits if costs rose, leaving staff reaching 65 having to accept potentially worse pay and conditions in order to stay in work.

And a report out earlier this week, written by Lord McFall of Alcluith, the former chairman of the Treasury select committee, said that millions of people face a “bleak old age” when they retire, due to a low level of savings and the “complex, costly and inefficient” pensions system.

Business experts have been so concerned about this that they have already urged the Government to delay the planned changes, warning that firms face “huge uncertainty” and a greater risk of unfair dismissal claims.

However, the law stands that, as of October 1st, requiring an employee to retire because of their age will potentially be both unfair dismissal and age discrimination. Employers can safeguard their position by maintaining a compulsory retirement age for all employees and by being ready to defend this as ‘objectively justified’ in an Employment Tribunal.

A number of other bodies, such as unions and the Chartered Institute of Personnel and Development (CIPD) welcomed the change however.

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Overhaul of Copyright Laws Will Help Private Business 
The Government announced plans yesterday to support economic growth by modernizing UK intellectual property (IP) laws. Recommendations to do so were made in May this year by Profesor Ian Hargreaves in his report entitled ‘Digital Opportunity: A review of intellectual property and growth’.

Business Secretary Vince Cable said: "The Government is focused on boosting growth and the Hargreaves review highlighted the potential to grow the UK economy. By creating a more open intellectual property system it will allow innovative businesses to develop new products and services which will be able to compete fairly in the UK's thriving markets for consumer equipment.”

"We are accepting the recommendations and will now set about reforming the UK's intellectual property systems. Opening up intellectual property laws can deliver real value to the UK economy as well as the creators and consumers,” he added.

Key points in the review include:

• Bringing copyright law into “the real world” by introducing limited private copying, such as copying CDs to a computer.
• Allowing research scientists to perform ‘text and data mining’. Currently people like medical researchers are hampered from working on data without the permission of copyright owners.
• Establishing licensing and clearance procedures for material with unknown copyright owners. This would open up a range of work currently unavailable for consumer or research purposes.

The CBI broadly welcomed the review where it would bring IP law in line with modern day realities, although it warns the Government against “action that will undermine genuine patent clusters”.

However, organizations such as the Coalition for a Digital Economy (Coadec), and the British Interactive Media Association (BIMA, believe that the Review represents a milestone for the UK digital economy, recognising that the nation’s intellectual property laws, and in particular copyright law, must adapt to change.

Jeff Lynn, Chairman of Coadec said: “... we look forward to working with the Government on the detail of each of the forthcoming proposals and consultations.

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UK Recovery Slower Than Expected 
In its latest forecast, published today, the National Institute of Economic and Social Research (NIESR) has warned that weaker economic growth and consumer spending will mean that public sector borrowing will shrink less than the Chancellor hopes.

Similarly to the International Monetary Fund’s (IMF) assessment this week, NIESR says that the UK economy will grow by just 1.3 per cent this year and by 2 per cent in 2012. It had predicted growth of 1.4 per cent in April but the figure for next year remains unchanged.

However, unlike some analysts, it is slightly more optimistic about inflation and predicts that this will fall from 4.2 per cent this year to 1.9 per cent in 2012.

Like the IMF, NIESR says that the biggest risks faced by the UK’s economic progress come from abroad, and the eurozone in particular, as “a disorderly default in Greece, or the need for debt restructuring in other euro area countries, cannot be ruled out”.

Unlike the IMF, which is broadly in favour of the Government’s plan for recovery, NIESR calls on the Chancellor to slow the pace of reform in order to give the economy a short-term boost. Measures the think-tank suggests include targeted income tax breaks for those on lower wages.

Some of its bleakest predictions centre on unemployment, calling the current rate a “permanent scar” on the UK economic landscape. If structural unemployment settles at 6.2 per cent, as it forecasts, then 300,000 more people would be permanently unemployed than before the crisis.

However, NIESR also predicts that unemployment will peak at just 8.3 per cent next year, which is lower than its April forecast of 8.7 per cent. This is much better than the 10 per cent experienced in the last two recessions.

Overall, NIESR’s prediction is that it will not be until 2013 that “the recovery takes hold”.


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