Banks and Businesses Should Find Common Ground to Boost Lending
Banks and small businesses must work together to stimulate lending if the economy is to fully recover, the Forum of Private Businesses (FPB) has said.
Speaking at the recent Better Business Finance conference in Manchester, FPB chief executive Phil Orford said that the time for “bashing and blaming” had passed, and urged banks and businesses to find common ground in order to boost economic growth and improve lending levels.
“We’re talking about enabling or disabling our recovery – it’s that serious. Businesses and banks need to take a critical inward look and accept that the days of easy credit have gone.”
The FPB said that tougher lending criteria and centralised decision-making were two main reasons for small firms failing to secure bank finance.
However, Orford insisted that small businesses needed to boost their own creditworthiness by taking steps such as offering assets as security, being methodical when preparing business plans and managing credit ratings.
High street banks lent small firms around £16.8 billion in the first three months of 2011, according to the latest Bank of England figures, despite small business lending targets of around £19 billion each quarter, set by Project Merlin, an initiative between the Government and four top high street banks.
Federation of Small Businesses (FSB) spokesman, Andrew Cave, said small firms were still being turned down by banks, despite Government measures. “A recent survey of FSB members found that 44% had been refused for credit,” he said.
British Banking Association (BBA) spokesman, Brian Capon, said that banks were doing all they could to work with small firms, but it was a question of closing the “understanding gap” between lenders and firms.
“Banks are lending new money to small firms at a rate of around £500 million a month. But firms in a viable position to borrow money must be clear on how best to present their case, in the same way that banks need to know what businesses are looking for.”
Capon added that “muted demand” was responsible for the lower than anticipated lending levels in the first quarter, although the FPB said that high finance costs were deterring small firms from bank borrowing.