Banks & SMEs: “Rebuild Trust” to Boost Lending
Small firms requiring bank finance need to rebuild trust with their bank managers and demonstrate that they are viable to lend to, the Federation of Small Businesses (FSB) has urged.
The call comes after an FSB survey of 1,400 small firms highlighted that bank lending to small businesses remains low ― only 18% approached banks for new credit in the first two months of 2010. Of these, just 50% of applications were successful.
“There needs to be more openness and dialogue between banks and small firms,”
said FSB spokeswoman, Sara Lee.
“The banks need to show fair lending criteria and fair rates so businesses know they can approach them. Small businesses, too, need to speak to their bank managers and start to rebuild trust. They need to try to re-establish a relationship so the banks understand that their business is viable and that they’re making plans for the future.”
“Firms shouldn’t be naïve about going in to their bank. They need to show some commitment. Get their finances in order and show they have put some effort into their company.”
Lee said that the lack of lending was a concern.
“When you come out of a recession you find that small businesses like to innovate and bring out new products and they need new funding for that,” she said. “It’s significant that businesses are still concerned that, as throughout the recession, they will be refused credit by the banks.”
Lee added the research did not pinpoint reasons for banks’ loan refusals, but anecdotal evidence pointed to “continuing strict lending criteria”.
She said the introduction of the Small Business Credit Adjudicator announced in the Budget should help to ensure small businesses are given a fair deal and a right of appeal against decisions made by big banks.
The British Bankers’ Association assistant director, Brian Capon, said that many small-business owners have decided that the time is not right to grow their businesses.
“Others are taking the decision that as the banks are unlikely to lend to them, they won’t try. The reality is that banks are there to loan, but they need to be assured that they’re going to get their money back.”
“Small businesses need to consider the effects of a likely drop in turnover on their business and have a plan B in place when applying for credit,” added Capon.
The FSB research also revealed that 16% of respondents saw an increase in the cost of their credit in January and February.
“Small businesses continue to bear the brunt of the financial crisis and are being penalised with extortionately high interest rates,”
said FSB national chairman, John Walker.