The Forum of Private Business is responding to the announcement that the UK’s major banks are more than £2 billion short of hitting their small business lending target by repeating its calls for better competition, more investment in regional branches and the restoration of lending powers to local bank managers.As part of their commitment to lending £190 billion to businesses in 2011 – including £76 billion to small and medium-sized companies – the ‘big five’ banks have pledged to lend £19 billion in the first three months of the year. However, just £16.8 billion has been lent. According to a joint statement by Project Merlin banks small business lending demand has declined.
While the Forum’s own research suggests many firms are focusing on consolidation not growth, the not-for-profit organisation is arguing that this downturn is a result of mounting alienation due to lenders’ punitive risk criteria and inflated interest rates, rather than indicative of a lack of need for affordable finance. “I am disappointed but, frankly, not surprised that these SME lending targets have not been met – we are prepared to wait until the end of the year before making a final judgement but it is clear the banks are trotting out the same old excuses when they are simply not delivering on the ground,” said the Forum’s Chief Executive Phil Orford. “There is a widening knowledge gap when it comes to lenders’ ability to gauge small business risk. We want to see banks invest in regional services, and also hand decision making powers back to local branch managers who are best placed to make key lending decisions based on realistic assessments of individual businesses.
We must move away from the over-centralised, tick-box mentality we are seeing now.” Pointing to the latest official government figures on SME finance Mr Orford added: “Despite what the banks are saying, the requirement for affordable funding is not going away. There is a real, pressing need for better, more cost-effective growth finance. The problem is that small businesses are becoming increasingly alienated by mainstream lenders. “More and more our members are seeking out alternatives but one of the major barriers is a lack of competition in finance markets dominated by the big banks.
The few new and innovative funding platforms that are out there struggle to gain a toe hold. “To reiterate what we have said before, a lending code that is not binding, targets that banks are not meeting and mentoring and appeals schemes of unproven merit are just not enough to fix this serious problem.”
Addendum: I have to agree with the comments regarding the restoration of lending powers. Your local business manager will understand the constraints SME’s are under in their local area. As the owner of Amril I am in constant contact with my very supportive business manager, I always keep her in the picture of how the business is going, what new is happening and asking for general guidance.
Being in the Credit Industry I can sympathise with her frustrations when considering the lending requirements of a business. A few years ago your credit rating mattered but now your credit rating as a business is essential, your business rating must be positive with no detrimental issues showing what so ever. Any defaults, CCJ’s will certainly have you walking out the door with your overdraft or loan requirement being unapproved.
Their are other reasons why a business is turned down that is for sure, and I believe that certain businesses do have a right to be disgruntled with their bank. I strongly believe that as a business you look internally at your credit management processes and if you know they are not up to scratch, sort them out first, I can guarantee that as a business your success rate will increase and you will be able to get better terms.
Their is no point going to your bank manager with your debtor days spiralling out of control. Businesses must look internally and fix the problems rather than using additional finance as a stop gap, which they may not even get.