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Skin in the game

WHEN Sarah Brown approached HSBC for her first business loan five years ago, it took more than a year to persuade it to back her start-up.

Skin in the game

Brown, the founder of Pai Skincare, which sells natural beauty products for sensitive skin, was looking for just £20,000, having put £15,000 of her life savings into her idea. “We applied for a loan when we had been trading for two to three years, making the products in my garage. Despite using the government’s enterprise finance scheme it was not at all easy,” she recalls.

Things have improved since then, in part thanks to a supportive relationship manager from the bank, who has taken a close interest.

Pai received a second loan, for £70,000, two years ago and a third this year, for £210,000, plus a further £100,000 through equipment finance.

The third tranche of money has enabled the company to supply Fortnum & Mason in London and Le Bon Marché department store in Paris, as well as investing in manufacturing facilities, development team and sales staff.

The company has five years of profitability behind it and made £2.3m of sales last year. “Five years ago banks wanted to make sure that businesses could afford to pay back their loan. It is easier now, but we have made it easier for ourselves by remaining profitable,” Brown says.

The big five banks

Barclays positions itself as a bank for companies large and small, but it is also keen on the fintech sector and recently announced a £100m fund to help fast-growing tech businesses reach the next level. Its 15-week accelerator programme tries to find the fintech stars of the future, with bases in London, New York, Cape Town and Tel Aviv.

Gross lending to small and medium-sized enterprises rose by 60% in the first six months of this year, reaching £2.7bn. Gross lending for 2014 in total was £3.8bn. Barclays provides customers with mentoring and practical guidance. The bank has free growth clinics and last year helped more than 112,000 start-up businesses. Start-up business accounts are free for 12 months. The bank also offers “pre-assessed” overdraft facilities and loans for small businesses, which help them know that funding is available if needed. More than 300,000 small firms have used the service.

Rebecca McNeil, head of business lending at Barclays, says cautious business customers have been building up deposits in recent years and are wary of borrowing. “Looking ahead as confidence returns to the market, we anticipate this build-up of deposits will eventually shift, as businesses start to think about how borrowing can help their business to grow.”

HSBC is stepping up its lending strongly in 2015. It lent nearly £14bn to small and medium-sized businesses last year (an increase of 18% on the previous year) and expects the full-year figure to be about 25% higher this year.

The sectors where lending is particularly buoyant are agriculture, manufacturing and the motor trades, with lending in these growing at 10% a year. The bank runs more than 300 “strategies for growth” workshops every month for small businesses looking to get to the next level.