SME Bank Funding Still a Concern
With over 17 years of experience in financing and developing small to medium size businesses and a Co Founder of Ezbob, Sharon Perlstein knows a thing or two about small business finance. Today he’s looking once again at why banks appear to be obstinately not lending to small businesses.
81% government owned, RBS has previously admitted to having £20bn that could in theory be lent to UK companies. So it is trying to ascertain why the problem of getting the money to businesses that need it most still persists. Former Bank of England governor Sir Andrew Large and management consultancy firm Oliver Wyman have been hired to conduct a thorough and independent review of the lending standards and practices used for UK-based SMEs by both the RBS and Natwest.
The problems of banks funding small businesses is evident in the fact that the RBS’ net lending to business fell by £1.6bn in the first three months of 2013, despite the fact the bank is accessing the government’s Funding for Lending Scheme, which has been implemented to essentially help banks lend more money. Taking a wide range of views into account, from customers and business groups to the government and regulators, the review aims to identify steps the bank can take in order to strengthen its support to SMEs. It also wants to make transparent the way the bank reaches its lending decisions. This is clearly a welcome step and is something business owners will doubtless hope gets repeated by other financial institutions that seemingly find it so hard to lend SMEs money.
As you’d expect, the review will take some time to complete and even longer for its findings to be implemented. Customers will be able to give their experiences of RBS lending via a dedicated website, so if you’ve dealt with the bank you may want to consider contributing to the review, which will take place over the summer.
Some argue there is a problem of a lack of demand from firms as opposed to there being a lack of funds. Yet banks clearly have an issue with credit scoring to sort out. Whilst small business owners that depend on credit cards and those with a perceived personal credit risk find it particularly difficult to access financial loans for small business, banks claim they have plenty of money put aside to lend.
Then there’s the issue of pricing and conditions that are attached to loans that so often put off borrowers from taking out a loan with a bank. The banks’ party line remains that they are keen to lend more money to British business owners and the money is there to do it.
There’s simply a problem of getting the money out of the bank and into the people that will ultimately work hard to improve their own standard of living and the economy as a whole. As the Business Secretary Vince Cable said: “there are plenty of British companies that could use the money”; so let’s hope it starts to flow in their direction.
Back in Jan 2011 Natwest leant us 200k. A pretty sizeable loan. We repaid £120k of it after 1.5 yrs and then re-aplied for another 100k but this time they said no. I cant work it out. We’re more profitable now than we were when they leant the 200 and have a history of decent repayment. Using peer to peer lending now with success.
Government tell the banks to lend more to small businesses. Government tell the banks to hold more capital on hand. Government suggests to banks they don’t repeat the mistakes of lending to those who will have difficulty paying back.
How risky is business lending?
Has been a growth in recent years of peer to peer lending, of specialist companies for such as ebay and amazon traders.
Never had any trouble accessing finance from my bank (Natwest) though my first business review the business manager had difficulty with ‘turnover’ and wanted to multiply one month by 12 when we vary somewhat over the year.