As the UK high street bank’s report their half year results, EMC Corporate Finance Ltd asked the question to bankers’, advisers and business leaders’ are UK bankers’ really lending to small and medium sized enterprises? The straw poll was run through LinkedIn and became one of the hot topics on the ICAEW’s group on LinkedIn.
The results were evenly split with 55% of respondents disagreeing with the statement and 45% agreeing with it.
Within the poll the comments reflect the very cautious nature that bank’s have to lending in modern times. One leading recruitment owner, who voted yes, stated that they are only lending with “significant levels of security and personal guarantees”. This supports a Surrey based IT chief executive commented “My view is that they are lending where the risks are known, understood, presented well and are of an acceptable level. They quite rightly got criticised for the old days when they would lend to anybody, almost without question about the risks”.
The CEO rightly reflects on the dilemma that the banks now face. The UK Government is placing considerable pressure on them to lend to businesses, with Vince Cable, the business minister criticising them for not lending enough. At the same time, worldwide banking regulators, through Basel III, the FSA and the Bank of England have strengthened the rules governing the capital adequacy of the banks to reduce the likelihood of the 2007/08 banking crisis reoccurring. Put simply it means that regulators have said the banks must have stronger balance sheets, which means either getting in more equity or reducing the amount they lend.
Two leading solicitors reflect on this, with one looking at the differing places that lenders and borrowers are approaching from “One reason for the disparity in perceptions appears to be that the banks have been able to make the jump to `old fashioned banking' very easily, whereas the SMEs - for obvious reasons - have not. The tension will remain until an acceptable equilibrium is found.” Meanwhile the other stated that “if the business is sound certain banks are in the market.”
This brings about another area that we have seen firsthand in businesses that we are involved in, that businesses are not prepared to invest with so much uncertainty in the market.
However, whilst bank bashing continues to be all the rage in the House of Commons, press and pubs, others see the opportunities of a banking sector hamstrung by rules and regulations. Asset based lenders have seen a significant upturn in business. Sussex has three of the largest independent Invoice Discounting and Factoring companies in the UK. All of them have seen double digit growth in their businesses in each year of the recession, as businesses turn to a flexible lending solution that matches the demands of their working capital flows.
If you would like to comment or need assistance with financing your business, email michael.pay@emcltd.co.uk
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