Despite government rhetoric evidence continues to accumulate that the banks are still not lending to Small and Medium-sized Enterprises (SMEs), according to rescue and turnaround advisers. “We are hearing that when companies apply for any lending the banks are only considering loans or overdrafts secured on tangible assets, with most also demanding personal guarantees from the directors in addition to the security” says one turnaround adviser. More evidence was revealed in the February figures released by the Bank of England that reported the total net lending by the UK’s five main banks fell in every quarter of 2011 and that banks had missed their lending target to small firms, whose use of bank overdrafts and loans had also declined over the past two years. In a survey of 11,000 small businesses by the FSB (Federation of Small Businesses) it was revealed that just one in 10 had obtained a bank loan in 2011.
Furthermore the FSB reported that 41% of applicants had been refused loans in the three months to February 2012. Graeme Fisher, FSB Head of Policy, commented that the UK banking system was not geared up to lower end loans of less than 25,000, adding that “there’s no money in it”. Business Secretary Vince Cable, quoted in the Financial Times, warned in his recent address at the annual City of London Corporation industry dinner, that recovery is being imperilled by the “yawning mismatch” between bank lending and demands for finance from SMEs. In a forecast at the end of April by economists at Ernst and Young, it was revealed that lending is expected to reduce further this year, to 419 Billion, a drop of 6.8 per cent. In conjunction with all this there has been a significant increase in invoice discounting and factoring. The banks appear to be no longer offering these facilities themselves, leaving the door open for independent companies such as Bibby, Close, Centric, SME, Ultimate and the new British bank, Aldermore. Where the banks appear to be unable to provide invoice discounting and factoring facilities against book debts these smaller companies are.
Clearly the banks are struggling or they are simply withdrawing from the SME market. The message may not have yet filtered down to their sales staff who are often saying “yes” to proposals from SMEs but then subsequently the bank credit committees are saying “no”. Rescue advisers argue that the banks are being deceitful, whatever the rhetoric they are using public relations tactics to report new loans, which are in fact not really new lending but the refinancing of existing facilities such as turning an overdraft into a term loan or a factoring facility. This is adding even more pressure onto small businesses, he argues, because there is a net decline in the flow of money into SMEs, and furthermore any new money is being provided at a very great cost in terms of fees and interest. While high rates of lending may be justified by the risk when it is unsecured, it is not justified when the loan is secured. Copyright ?? 2012 Alison Withers