History of business failure no longer black mark

Mar 18 2009 by Anna Blackaby, Birmingham Post

Deteriorating economic conditions and changing attitudes mean a previous history of business failure is not automatically a black mark against an entrepreneur obtaining funding for a new business, according to the region’s investment specialists.

In some cases, evidence of a business insolvency or administration on an entrepreneur’s CV could be viewed in a positive light, according to Paul Kalinauckas, chief executive of the Black Country Reinvestment Society, a mutual organisation set up to help businesses in the Black Country access finance.

Mr Kalinauckas said the loan fund took a character-based view on assessing the companies it backs and sets out to avoid a “computer says no” approach to people who have experienced business failure in the past.

“A history of business failure could be a plus where people can demonstrate that they have learnt from it.

“I think attitudes in general are changing as people are affected by the economic conditions.

“We all know somebody who has been made redundant and it is not the stigma it used to be any more, and in a similar way that applies to people who have been through a business failure.”

Ray Harris, investment director at Catapult Venture Managers, a Midland-based firm specialising in providing equity capital of between £200,000 and £2 million, said he often saw business plans where people had been through insolvencies or administrations.

He said these would not necessarily represent a barrier to Catapult providing funding.

“I wouldn’t go so far as saying ‘if you have got an administration on your CV that’s great news’ but it’s also true that we wouldn’t throw it in the bin straightaway.

“We do subscribe to the view that you do learn as you go through that process.

“Certainly in the current environment there are businesses who have gone through administrations because that was the only way that they could make the business viable.

“We tend to work out the reasons for that and work out whether it makes sense.

“If you look at the Americans they take a very different view of that, they say people learn from it even.

“But historically we have been quite sniffy about it in this country but certainly we, and other venture capitalists around town, do take a look at the circumstances and work out what went wrong. Otherwise we are going to end up with a whole generation of people who are going to end up on the scrapheap.

“There are people out there who went under because the company was badly-managed but, similarly, there are people who have gone into administration for reasons that were beyond their control. We take a reasoned view of that and see how they have got on since then.”

Birmingham-based Caspian Business Solutions, which provides bank accounts to people with adverse credit histories, said it had noticed a growing trend of company owners who had seen their businesses go under throwing themselves back into the fray.

It reported a 40 per cent increase in the number of new applications for its accounts for people with adverse credit from previously-failed entrepreneurs so far this quarter compared to the same period last year.

But Caspian Business Solutions managing director Chris Laing said there was still too much red tape preventing the formation of new companies by people who had experienced a business failure in the past.

“But it is getting better and failed entrepreneurs can start again,” Mr Laing said.

He said: “In the UK, business failure was previously deemed as lifelong by many major institutions, notably the banks.

“But now like other countries, namely the United States, we are looking to these failed entrepreneurs and looking for them to take the leap of faith a second time to help revive the flagging economy and create new businesses and more jobs.”

“It is encouraging that a number of the main high street banks are addressing business funding, particularly in the SME sector.

“But many are turning down clients with previous adverse credit for even a basic business bank account without even considering each application on a case-by-case basis.”