By Max Clarke
Banks, it emerged last month, missed their lending commitment to the UK’s small businesses, as agreed in February’s Project Merlin agreement, by more that £2.2 billion.
This prompted criticism that banks' aversion to small scale lending was impeding the UK recovery by preventing viable businesses from growing.
Blame for this shortfall, however, lies not in bank managers and with local branches, but at the very top of the banking hierarchy; as Phil Meekin, Business Finance Specialist at Yorkshire-based insolvency firm, Wilson Field, explains.
Said Meekin: “The banks have experienced staff at ground level who have the skills to manage the more marginal businesses but in most cases their hands are tied by reluctant senior bank executives.
“When the Bank of England revealed recently that lending to smaller businesses fell well short of pledges previously made, the Government warned the country’s major banks that it wants to see a ‘significant improvement’.
“The importance of small enterprises cannot be underestimated. They now account for 99.9 per cent of all businesses.
“They also accounted for more than half of employment (59.1 per cent) and almost half of turnover (48.6 per cent) in the UK private sector, at the start of 2010, according to statistics issued by the Department for Business Innovation and Skills (BIS). So it stands to reason that the growth which our economy desperately needs is reliant on the wellbeing of SMEs (small-mid sized enterprises).
“With this in mind, you would imagine the banks would be suitably humble and would outline how they were going to address this. Instead their collective voice — The British Bankers’ Association — blamed ‘muted demand’.
“But there is an abundance of anecdotal evidence from SMEs of lengthy delays by banks in responding to finance requests, of long shopping lists of pre-requirements, of unreasonable terms being offered or a straight forward answer of ‘no’. Many consider there to be little chance of the banks agreeing to lend.
“SMEs are being forced to look elsewhere. Starved of cash they are turning to invoice finance, private investors or re-financing plant, equipment and other fixed assests.
“If none of these are available or appropriate then as a survival strategy business owners are turning to insolvency professionals rather than lose their businesses.
“It’s time the banks honoured their pledges and started to support SMEs, which are not ‘blue chip’ but have a viable business plan to trade out of their difficulties.”
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