Copyright (c) 2012 Alison Withers
In spite about government rhetoric evidence continues to hill up 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 similarly demanding individual guarantees from the directors in suffix to the security” says unit turnaround adviser.
More evidence was revealed in the February figures released by the Bank of England that reported the total net lending handy 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 concerning bank overdrafts and loans had also declined over the past two years.
A analysis by the Association of Small Businesses (FSB) regarding 11,000 SMEs found that just one in 10 had obtained a bank loan in 2011. Too the FSB reported that 41% of applicants had bot refused loans in the three months to February 2012. Graeme Fisher, FSB Head of Policy, commented that the UK banking system was not geared jump to lower end loans of less than £25,000, adding that “there’s no money in it”.
The Financial Times quoted Affair Secretary Vince Cable’s warning, in his recent address at the annual Ghetto of London Corporation bustle 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 anticipation to reduce further this year, to £419 Billion, a drop of 6.8 per cent.
In conjunction with all this there has bot a significant development in invoice discounting and factoring. Again the banks loom 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 besides factoring facilities against book debts these smaller businesses are. Clearly the banks are struggling uncertainty they are simply withdrawing from the SME market. The message may hardly have yet filtered down to their sales staff who are often saying “yes” to proposals from SMEs but next subsequently the bank glory 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 from existing facilities such as turning an overdraft into a term loan substitute 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 legal tender 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 whereas it is unsecured, it is nay justified when the loan is secured.