By Daniel Hunter
The Forum of Private Business argues it has come as little surprise the banks have missed their small business lending targets under Project Merlin, but says it’s a timely reminder for lenders now to refocus on financing those firms who most need their cash.
It was announced this morning that while the big four banks — Barclays, Lloyds, HSBC and RBS — have achieved their overall lending figures, they narrowly missed their pledged target to lend £76 billion exclusively to SMEs by £1.1 billion.
The not-for-profit employer organisation has said its members still routinely report problems with accessing finance from the high street lenders, with many having to seek alternate forms to aid cash flow, including credit cards and even loans from friends or family.
But it says this morning’s news proves it is now time for banks to provide more assistance to small firms by offering better value products, simplifying their lending criteria, and putting a greater focus on relationship banking.
“The banks have missed the lending targets for small firms, but not by such a huge amount as suggested by the number of small firms who still complain to us about problems accessing high street finance. This we know is still a burning issue for many SMEs,” said the Forum’s Chief Executive, Phil Orford.
“What perhaps muddies the water and makes the bank’s failure here less clear cut though is that overall demand for bank finance is down. Many companies have been simply looking to survive or consolidate over the past year rather than seeking credit to expand.
“What we need now more than anything is confidence — confidence from small business that the economy is heading in the right direction, and confidence from the banks to lend their money. Without either the economy is in danger of stagnating.
“The onus now, however, is really with the banks to get the ball rolling. They need to reach out further to business and repair the damaged relationship with firms who are essentially their core customers. Our helpline receives complaints from members every week over increasing costs associated with bank products and the removal of overdrafts — these actions don’t help.
“In addition, we need cheaper credit, more investment in regional branches, and the restoration of lending powers to local bank managers.”
“And if the banks are unwilling or unable to deliver these core requirements, government should intervene more stringently to ensure that the do.”
But the Forum says while banks must take the lead, small firms should also help themselves by ensuring banks can find no reason to refuse them credit. Ensuring loan applications sparkle, and that credit ratings are show firms in a positive light all help in getting a ‘yes’.
“Bank lending will never be as free and easy as it was 10 years ago,” added Mr Orford.
“Banks have rightly had to tighten their lending criteria, although there’s a view that they have over-egged the pudding.
“Small firms can and should do more to help themselves though, ensuring their credit history is good and monitor it for any changes. Any mistakes should be reported immediately. Bank loan applications also need to be comprehensive and cover all angles and therefore advice and support should be sought before applications are made.
"If businesses can demonstrate that have regular and standardised financial information regarding their accounting, which is supported with a clear business plan, then this will also boost their chances of success, as will demonstrating their ability to repay their loans.”
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