By Claire West
Members of the UK200Group of independent accountancy and lawyer firms have commented on reports that the UK’s banks have promised to look again at why lending to small businesses has fallen, following pressure from the government.
Jonathan Russell, partner, ReesRussell and vice-president UK200Group:
“The banks have a huge hurdle to climb because many businesses are now not even asking them because they firmly believe the answer will be no and the last thing they want is a refusal on their record.
“In truth, the belief is well-founded as the attitude seems to be very much, ‘what are the reasons for the bank to say no’ rather than ‘what are the reasons to say yes?’.
“The fundamental problem is that banks no longer have managers who look after small businesses, their corporate managers will not look at anything that small so small businesses are handled by inexperience junior staff who have little or no lending experience and have to report to a faceless credit committee.”
Michael Watts, partner, Haslers:
“I think there is a real confidence issue, both with credit committees but also at bank manager level They are nervous about putting forward propositions that are not 100% watertight in case the bank ends up with a bad debt on the books, which then looks bad for the manager. They will always be able to put forward a reason that something is too risky for them. Then if it does get to credit committee I believe they are looking at everything in the worst possible light, rather than looking at the opportunity. They don’t seem to be willing to take any risks, which any form of lending will require to some degree, although it should not be risky like the past.
“This confidence then leads to Corporates not wanting to approach banks as they probably feel they will be rejected and they are also not willing to take on new debt given what has happened over the last couple of years. A number of our clients have, and are still, getting banks approach them and say they are looking to reduce the facilities available, which is not good for the long-term future.
“Pricing has also become a real issue — whilst the overall cost is broadly the same, the margin being sought has increased massively. I was with a client yesterday that had an overdraft facility ramped up to 8% interest and he has a property loan at 5% over base, which is scary if you think base might go back to 4 or 5% in a few years’ time.
“I don’t think any new pledge will help, I think this all comes down to confidence both in the banks and outside of the banks. I believe there is nervousness about a double dip and the public sector cuts, which will have an impact on a large number of businesses.”
David Ingall, partner, JWPCreers:
“I suppose there are a number of us who could write the report as it will come out from the banks. Lack of security, lack of sustainable figures, poor business models, poor business management and doubts on the economy are just some of the excuses. But are they the real reasons? Partly, I suspect, but the banks’ lack of appetite for all but the most gold-plated of lending is the real reason.
“The rules have been set from on high within the banks and is any manager going to run to the margin when his job is going to be at risk? The new banking regulations are going to restrict bank lending by asking for banks to be more careful. The recent rumours coming out of the FSA about new lending rules for mortgages are symptomatic of being risk averse in the extreme.
“In the heady days pre the credit crunch, much of the borrowing was generated from property transactions which most banks are reluctant to touch at present unless it is part of a bigger non-property transaction.”
Will Abbott, partner, Randall and Payne:
“There is a difference between what the banks say and what they do. They are lending money, but I suspect the net lending is negative; that is, they are collecting more back in.
“Business owners need to be realistic, though — there are plenty of basket cases expecting help and, frankly, this is what got us into this mess in the first place. Bank loans are not a panacea and in many cases businesses would be better off with equity funding.
“As the economy grows, businesses will need more working capital and this is what we need the banks to support.”
Daniel Shear, corporate finance partner, BKL
“There have been some decidedly mixed messages coming out of our banks lately as, on the one hand, they are trumpeting their efforts in lending more to small and medium-sized enterprises, while on the other, many SMEs are telling us that their requests are being turned down.
“We know of certain bank managers who have many years of experience in their banks, and therefore tend to be able to predict which deals will make it past their credit teams, who are now telling us that their credit teams are refusing some lines of credit for apparently unknown reasons.
“We think it likely that, despite the positive messages put out by the banks, the directors are telling their credit teams they will not tolerate the levels of write-offs experienced in the past couple of years and there is pressure on the credit teams to only accept the securest funding lines.”