In Focus: Access some areas
The access to finance issue just won’t go away. Banks say they are lending but SMEs say they’re not seeing it.
The truth, as often, is probably somewhere in the middle. There are fewer lenders in the market this side of the recession and high street banks are having to rebuild their capital bases. They are lending but, perhaps understandably, they’re looking for safe bets. SMEs are often the ones suffering as a result of a strict risk versus return policy that banks are rigidly adhering to.
But something has to give. SMEs are the large companies of tomorrow. If they are not helped to grow that’s a ticking timebomb for the future economic prospects of UK plc.
Research recently commissioned by the accountancy body ICAEW suggests some SMEs feel ‘bruised’ and ‘scarred’ by the way they have been treated by their banks during the recession and whatever trust that had existed has disappeared as a result.
Relationship managers within banks are perceived as relying on a tick-box mentality when responding to applications for finance.
Other findings revealed that, despite current low interest rates, the fees charges and margins banks require have increased. There is a greater demand for security and personal guarantees which adds further pressure on small businesses when seeking finance. The process for applying for finance itself takes longer and there are inconsistent messages from the banks as to whether the application will be successful.
The ICAEW’s recommendations include banks making a greater effort in making contact between key local bank personnel and businesses and greater clarity in the process of applying for finance including a commitment by banks to a 28 day turnaround for 95 per cent of finance applications.
But it is also true that SMEs need to quickly come to terms with the brave new world of accessing finance. Banks aren’t the only game in town of course but they remain the first port of call for many businesses.
I’ve noticed a change in attitude amongst business leaders in recent months. They still think banks should be lending more but many now take the view that SMEs aren’t doing enough to make themselves an attractive proposition to lenders. At an Insider event this week we were told that often business plans are not robust enough and that SMEs are still taking the attitude that they are entitled to money rather than accepting it needs to be earned.
Non-executive directors and mentors who are used to dealing with the banks can be a great help here but many small businesses are reluctant to take on that additional expense in the current climate.
It’s a real problem and the Basel 3 regulations which will impose even greater capital requirements on the banks won’t make life any easier on the lending front.
Work clearly needs to be done by banks and SMEs to help repair the damaged relationship the ICAEW highlights. But it’s too important an issue to be left to them alone. More needs to be done at a governmental level to ensure that the lenders of first resort don’t leave small businesses drinking in the last chance saloon.
