In the blog Has Merlin lost his magic, the issue of banks failing to meet their lending targets as set by the government was considered. Small businesses have been finding it difficult to obtain bank loans to help their business grow. Vince Cable has gone so far as to say: ‘There is a serious problem with lending to good, small companies.’ As a result of this, new sources of finance are being sought and one innovative approach has come to the forefront: crowd funding. People group together by pooling their money and investing in ideas or businesses. The attraction is that it doesn’t require huge amounts of cash, but with enough potential investors, significant amounts of finance can be raised. The following BBC News article looks at this innovative approach to financing a business.
Small firms seek crowd funding BBC News, Catherine Burne (27/5/11)
Questions
- What is the attraction of crowd funding?
- Are there any risks of this method of finance to the investors and to the firm seeking investment?
- What are the disadvantages of crowd funding relative to something like investment from a venture capitalist?
- How important is the size of the firm when it comes to the viability of crowd funding?
‘eBay has declared that Britain’s small businesses have “come of age” online, after reporting that the number of its traders who are turning over £1m a year had nearly doubled over the last 12 months.’
So begins the linked article below from the Guardian. Unlike other small and medium-sized businesses (SMEs), many of which did not survive the recession, the number of successful online SMEs is increasing and their survival rates are generally high. According to eBay, some 25,000 people have set up business on its site since the recession and it is predicted that 127 will have a turnover of over £1 million in 2010 (up from 66 in 2009).
So what is it about the online environment that helps small business to develop and thrive? Does going down the e-commerce route avoid many of the pitfalls of traditional business models? And does it have any specific pitfalls of its own? Read the articles below and then attempt the questions that follow.
eBay doubles number of traders with turnover above £1m Guardian, Graeme Wearden (21/8/10)
Why e-commerce IPOs will soon be the smarter buy VentureBeat, Owen Thomas (18/8/10)
Small businesses prosper in eBay’s millionaires’ club InternetRetailing, Chloe Rigby (21/8/10)
Ecommerce technology is retail investment priority: report InternetRetailing, Chloe Rigby (13/8/10)
Move into ecommerce could transform the Scottish economy Sunday Herald, Colin Donald (22/8/10)
Small businesses ‘tend to be a risk’ to lenders BBC Today Programme (23/8/10)
Questions
- What advantages does e-commerce have for SMEs: (a) in the startup phase; (b) over the long term?
- What are meant by ‘network economies’? Does eBay offer such economies to SMEs?
- Follow the links in the above articles to study the experience of two specific online SMEs and identify the strengths and weaknesses of their business strategies.
- What considerations might an SME take into account that is currently trading on eBay or Amazon in deciding whether to set up its own website and trade directly from that?
- Why may a move into e-commerce prove particularly beneficial to the Scottish economy? Would this apply to all online SMEs or only certain types?
No-one in the UK can have failed to notice the seemingly never-ending torrent of wind and rain that has swept the country over the past couple of weeks. At the moment, there are 19 flood warnings in the UK and a further 58 areas are on flood watch, according to the Environmental Agency. Cockermouth in Cumbria has been the worse hit, with 12.4 inches of rain falling in just 24 hours, 6 bridges collapsing and over 200 people being rescued by emergency services, some having to break through their roof to get out. Thousands of people have been evacuated; PC Bill Barker lost his life trying to save others; and fears remain for a 21-year old women, who was washed away from a bridge. This has led to a safety review of all 1800 bridges in Cumbria.
Thousands of people have lost their homes and belongings and over 1000 claims to insurance companies have already been made. Flood victims are facing rapidly rising costs, as insurance premiums increase to cover the costs of flooding and this has led to these houses becoming increasingly difficult to sell. Some home-owners are even being forced to pay mandatory flood insurance. Without this in place, insurance companies are not willing to insure homeowners in some areas, or the premiums they’re charging are simply unaffordable. After all, if one household in an area hit by flooding claims for flood damage, the probability of all other houses in that area also claiming is pretty high, if not an almost certainty.
Care packages are arriving for those hit by the floods, as food is starting to run out, and estimates of the costs of flooding have already reached ‘tens of millions of pounds’. Gordon Brown has pledged £1 million to help the affected areas, but who knows where this money will come from; Barclays has also pledged help for the small businesses affected.
An independent inquiry needs to be launched into the causes of this flooding and whether better flood protection should have been in place. However, the extent of the flooding experienced is argued to only happen every 300 years, so is the cost of flood protection really worth the benefits it will bring? A number of issues have arisen from this freak weather, and some are considered in the articles below.
Residents returning to Cockermouth after flooding (including video) BBC News (23/11/09)
Insurers will be hit by £100 million flood bill City AM, Lora Coventry (23/11/09)
£100 million bill after Cumbria floods nightmare Metro, Kirststeen Patterson (23/11/09)
Floods claim in Cumbria could and Scotland could top £100 million (including video) BBC news (22/11/09)
Riverside residents, others may be forced to buy mandatory flood insurance The Times, Illinois, Steve Stout (21/11/09)
Funds for flooding victims set up BBC News (22/11/09)
Flood victims suffer as insurance costs rise Guardian, Jamie Elliott (8/11/09)
1 in 6 house insurance customers at risk of flooding UIA (20/11/09)
Papers focus on flood shortages BBC News (23/11/09)
Questions
- Why are insurance premiums high for flood protection and how will this affect house sales in the affected areas?
- Are the risks of flooding independent?
- Apart from those living in the areas hit by floods, who else will suffer from the flooding and how?
- The flooding experienced is said to be a phenomenon experienced every 300 years. Should better flood defences be put into place to stop the same thing happening in the future or should we use the necessary money elsewhere?
- What are the private and external costs and benefits of increased flood defences? What would a cost–benefit analysis need to establish in order for a decision to be made over whether more defences should be put in place?
- Millions of pounds will be needed to repair the damage caused by the flooding. Where will this money come from? Think about the opportunity cost.
- What do you think will be the likely impact on environmental policy and how will this affect you?