Credit still too controlled
24 May 2011
As with every other sector in the UK economy, the last three years have been a struggle for British electronics firms, particularly those who need credit to get a kick start.
Earlier this week data was released that revealed the first quarter lending performance of the main banks to SMEs. Although this is only the first quarter – and there is therefore plenty of time for them to get back on schedule – if the current shortfall in lending continued at the same rate (about 12%) it could see £9bn of credit removed from the SME marketplace during the course of the year.
I pass the rest of this comment over to the Forum of Private Business, who is repeating its calls for better competition, more investment in regional branches and the restoration of lending powers to local bank managers.
As part of their commitment to lending £190 billion to businesses in 2011 – including £76 billion to small and medium-sized companies – the ‘big five’ banks have pledged to lend £19 billion in the first three months of the year. However, just £16.8 billion has been lent.
According to a joint statement by Project Merlin banks small business lending demand has declined. While the Forum’s own research suggests many firms are focusing on consolidation not growth, the not-for-profit organisation is arguing that this downturn is a result of mounting alienation due to lenders’ punitive risk criteria and inflated interest rates, rather than indicative of a lack of need for affordable finance.
“I am disappointed but, frankly, not surprised that these SME lending targets have not been met – we are prepared to wait until the end of the year before making a final judgement but it is clear the banks are trotting out the same old excuses when they are simply not delivering on the ground,” said the Forum’s Chief Executive Phil Orford.
“There is a widening knowledge gap when it comes to lenders’ ability to gauge small business risk. We want to see banks invest in regional services, and also hand decision making powers back to local branch managers who are best placed to make key lending decisions based on realistic assessments of individual businesses. We must move away from the over-centralised, tick-box mentality we are seeing now.”
Pointing to the latest official government figures on SME finance Orford added: “Despite what the banks are saying, the requirement for affordable funding is not going away. There is a real, pressing need for better, more cost-effective growth finance. The problem is that small businesses are becoming increasingly alienated by mainstream lenders.
“More and more our members are seeking out alternatives but one of the major barriers is a lack of competition in finance markets dominated by the big banks. The few new and innovative funding platforms that are out there struggle to gain a toe hold.
“To reiterate what we have said before, a lending code that is not binding, targets that banks are not meeting and mentoring and appeals schemes of unproven merit are just not enough to fix this serious problem.”
Finally – as a complete change of subject – the deadline for the e-Legacy nominations closes this week (Thursday 27 May 2011). Entry is free, it only takes a few minutes and it could turn you into the company hero! Please enter here today!
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