In Focus: Funding fault
It was interesting meeting up with Royal Bank of Scotland chief executive Stephen Hester during his flying visit to Birmingham this week and getting his take on the issue of SMEs and their difficulty in accessing bank finance.
His made the point that that the biggest problem is not a lack of willingness amongst banks to loosen the purse strings but a lack of confidence amongst companies.
"It is incontrovertibly true that in general banks would like to lend more than their customers are asking for,” he said, adding that 85 per cent of small businesses that ask for money get a positive response.
I’ve got no basis on which to question these assertions and statistics but in their totality they don’t chime with what we are being told again and again by SMEs and the advisory community. According to them the banks are extremely selective about whom they lend money to in terms of both size of business and the sectors they operate in. They are also very slow at making decisions these days, a point Hester acknowledges.
"Whenever there are problems systems tighten up," he said. "I’m entirely prepared to believe that there is an element of process that has gone too far and which we the banks need to work through.”
But whilst there may be agreement on due diligence, banks and SMEs appear to be miles apart when it comes to interpreting the access to finance picture.
"The issue is more about business confidence than it is about banks’ willingness to loan,” insists Hester. But anecdotal evidence suggests that’s not the case. Time and time again business owners are telling us that their attempts to raise finance with their bank have been a non-starter. And advisers are reporting that deals are often falling down because the debt element isn’t forthcoming.
The argument will continue but there is one thing that many observers are agreed on and this is that banks need to be more transparent with regards to their lending criteria. Those same advisers who tell us that deals are falling through because of a lack of bank support tell us that decision often doesn’t get passed on until the parties to the deal are a fair way through the process. They complain that the banks are stringing them along and wasting their time.
When I asked Hester about this he said he would rather his people looked into the possibility of being able to say yes rather than saying no straight away, but surely it would be possible to give an indication to businesses and advisers at an earlier stage of their likelihood of success.
It’s often said that companies don’t help themselves when seeking finance by not presenting a thorough enough business plan. I’m sure this is true in some cases but the banks need to do their bit by being much more transparent in outlining what they require from businesses and what their criteria is for lending money.
As one broker told Insider this month: “The biggest current challenge is understanding the banks’ criteria. This is crucial in advising a client on what options they have and the chance we have of obtaining finance. Criteria seems to vary from week to week and from customer to customer. The advantage of clearer criteria is that this prevents time wasting applications and allows us to better filter the right application and client to the lender most likely to support and deliver funds.”
To me that amounts to a common sense suggestion that the banks could easily comply with and which would make life easier for many businesses. Let’s see if any bank takes up the challenge.
Any comments? Andy Coyne, Insider
