Local Bank Managers Have Hands Tied

Local Bank Managers Have Hands Tied

The Bank of England revealed recently that lending to smaller businesses fell well short of pledges previously made. In reply, the Government warned the country’s major banks, it wants to see a “significant improvement”.

We can not underestimate the importance of SMEs. They now account for 99.9 per cent of all enterprises. They 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. This was 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.

With this in mind, you would imagine banks would be suitably humble outlining 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. With long shopping lists of pre-requirements, the offering of unreasonable terms or a straight forward answer of ‘no’. Many consider there to be little chance of the banks agreeing to lend.

Imagine there were a shortage of bread and each day you trudge from shop to shop, day after day, without success. Eventually you would give up and look for an alternative – or simply starve. And the bread shops would experience “muted demand”. 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. 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.

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