By Marcus Leach
A small business support organisation has urged George Osborne not to forget the issue of bank lending in the forthcoming Budget.
The Forum of Private Business is calling on the Chancellor to remember that the problem of funding for smaller firms is still far from resolved, despite the recent ‘Project Merlin’ agreement on bank finance.
While welcoming the target of a 15% increase in lending to smaller businesses outlined in February’s agreement, the Forum has pointed out that many banks claim that the demand for credit from SMEs is subdued.
As a result, the not-for-profit business support organisation believes that in order for the banks to meet the new targets, steps have to be taken to simplify the lending process.
In its recent Budget submission — A Budget to Get Britain Trading — the Forum argued that the Government needs to implement measures to make the process more transparent, flexible and ensure it is inexpensive for SMEs to use.
This may well require a relaxation in regulatory law to allow relationship managers to make lending decisions on a local level, along with the creation of clear timelines for application processes and a clarified complaints process for SMEs who wish to object to the rejection of an application.
This, the Forum believes, will help undo the sense of disillusionment expressed by many business owners towards the issue of bank lending. It should encourage applications both from businesses turned down for finance in the past and from SMEs which have never applied for bank lending due to doubts over their chances of being accepted.
The Forum’s most recent Referendum ballot of members, which was carried out in December 2010, found that funding is still a huge issue for smaller businesses.
Unprompted, 24% of Forum members said better regulation of the banks and finance should be the priority for their elected representatives. Referendum also found that finance has become an issue for an increasing number of SMEs, despite fewer businesses reporting cash flow issues.
Commenting on the issue of small business finance following the Merlin agreement, Forum Chief Executive Phil Orfordasked how the banks intend to increase the flow of credit to smaller businesses if, as they claim, demand for lending is down and all viable lending applications are already being accepted.
Mr Orford said: “The banks say demand is down. They say applications are running at an 80% acceptance rate. If this is the case, how do they intend to increase lending to small firms by 15%?
“I believe the answer is that they must review risk criteria and be less punitive on viability assessments — and make a particular effort to cut down on sector-based discrimination.
“The banks must be more proactive in securing up-to-date financial information from their clients and they need to communicate more clearly to applicants what the key assessment criteria are, so applications are more compliant with the lenders’ needs.”
Commenting on the need for an accessible appeals process for businesses to turn to when they feel they have been unfairly denied loans, Mr Orford added: “We want to see a review process which is truly independent and overseen by a credible figure drawn from the business world.
“It is also vital that the process takes place in the public domain as much as possible and subject to regular scrutiny as a certain degree of transparency is needed in order to gain the confidence of the business community.”