SMEs See No Options to High Street Banking

New research from the Forum of Private Business shows that many small businesses still look up to the banks for much-needed capital but are still not getting the finances they need.

An overwhelming number of small firms (94%) on the Forum’s cash flow and finance panel agreed that access to finance is important to restoring a more stable business environment by providing that additional factor – business confidence.

However, 40% of those small businesses said that their cashflow situation has not improved lately.

Senior Policy Adviser at the FPB, Alex Jackman, said:

"While some firms are seeing improvements to cash flow, working capital and growth capital many more are seeing these deteriorate and are looking to the banks to provide the finance for growth in order to boost business confidence and drive economic recovery,"

The research comes hot on the heels of a rash of high street banking problems over the last two weeks. It started with huge problems at NatWest, RBS and the Ulster Banks where a technical fault caused days of chaos amongst domestic and business customers alike.

Next came the issue with small businesses being mis-sold complex interest rate hedging products or interest rate swaps. The Financial Services Authority (FSA) found Barclays, HSBC, Lloyds and RBS guilty of a number of poor practices and reached agreement with the four banks to redress the victims without the additional cost of involving lawyers and/or claims management comapnies to the small firms.

The last bombshell was the attempted manipulation of the London InterBank Offered Rate (LIBOR) by Barclays, for which they were fined £290m by the FSA. This led to the resignation of its Chairman, Marcus Agius, and the CEO, Bob Diamond, fierce debate in the House of Commons and a grilling by the Treasury Select committee of the most prominent people involved in and around the rate rigging scandal.

Speaking of the banking upheaval, Jackman added:

"Small business owners are likely to feel vindicated that the banks are being taken to task given the experiences they have had in recent years – but clearly mainstream lenders remain centrally important in their eyes. Entrepreneurs believe banks can do a lot better and are calling for improved levels of service, including more branches, faster and more transparent decision making and greater choice."

There appears to be a perceived lack of options for small businesses when it comes to banking, despite there being other sources of funding available to SMEs.

Jackman continued:

"There is caution in some quarters over alternative forms of funding but the research suggests that, if these improvements are not delivered, many entrepreneurs alienated by mainstream lenders are more than willing to vote with their feet and explore newer, more innovative financial services less dependent on automated risk criteria. There is an important role to be played by accountants and other financial advisers – including bank representatives – in guiding them in the direction of funding solutions that work for their businesses."

Jackman identified that the solving the issue of late payment would also go a long way toward helping small business and their cash flow, which has improved for only 26% of the Forum’s panel but proved a negative for 43% of them with similar figures for working capital.

However, regarding choice, just 20% of firms surveyed said there was a lack of options.

[Ed’s note – With the big banks being prominent in the public perception, it’s easy to see how smaller banks, other sources of finance, might be overlooked. However, there are over 20 banks alone offering business accounts, just see is4profit’s list of banks providing business banking.]

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