Banking feature – the new reality
There is a new banking reality post Lehman Brothers crash; it was previously said that you could start a business by going to a hole in the wall machine. But how much has the context changed and is the well-worn claim that banks aren’t lending reality or perception?
The new reality – banking and access to finance report
In an October 2012 interview with NSBL John Penrose MP, who was previously a Risk Floor Manager with JP Morgan gave his assessment of the current finance context: “There are serious problems but they are not universal. The issue of firms getting finance varies enormously by sector and by business.
“Bigger firms and firms with physical assets tend to be finding it easier, but again, this can’t be applied as a universal rule because some smaller firms are accessing credit successfully too.
“Some big businesses have built up large cash reserves whilst many small ones are starved of liquidity.
“Which bank you’re with can also make a difference. Amongst the banks there is definitely a difference in attitude to lending and taking risks.
“An economist would say there is low velocity in the economy at the moment – meaning there isn’t enough money circulating fast enough. In practice it means there isn’t enough petrol reaching the engine, which is choking growth.
“It’s a very complex problem which is hard to resolve, but we aren’t giving up, as I hope the recent announcement of a new ‘Business Bank’ shows.”
Banks fight back
A neat assessment but what do the banks themselves feel about the current lending situation? Like many in the industry Gary Burton, who is Regional Director of HBSC Commercial Banking South West and Wales Regional Office believes that the reality is different from perception when it comes to banks lending.
He comments: “There is a common misconception that banks’ doors are closed to businesses – a notion that needs to be addressed and corrected. HSBC Commercial Bank is certainly open for business and is keen to work with companies in the South West to help them grow.
“In the first six-months of the year, HSBC provided over £640 million in gross new lending to small and medium sized enterprises in the South West, providing lending facilities to approximately 45,000 companies in the region.
For the UK as a whole, we provided £6.3 billion, up 8 per cent on the previous year and demonstrating HSBC’s intent with this important sector of the economy.”
Banks stabilised by the tax-payer
These figures clearly present an alternative commentary, to the usual ‘banks aren’t lending’ mantra, but what about the numbers for a bank that required tax-payer’s money to stabilise it post-crash?
Rob Hall, who is Senior Manager at Lloyds TSB Commercial, comments: “When reading the papers or watching the news, business owners could be forgiven for believing that funding is not available to help small and medium sized enterprises.
“At Lloyds TSB Commercial we couldn’t disagree more.
“Our team provide support to businesses with a turnover of up to £15 million. Through our network of relationship managers across North Somerset, we can offer a variety of funding options, such as term loans and overdrafts, to help SMEs achieve their growth ambitions.”
Rob continues: “Because we know access to finance is key to helping restore business confidence in tough economic times, we committed £10 billion of gross funding to UK SMEs in the first nine months of the year.
“This is a four per-cent growth year on year as at the end of September 2012, compared to a four per-cent decline in lending growth across the industry.
“In 2009 we also pledged to help 300,000 start-ups in three years as part of our SME Charter. As of October 2012, we had already helped almost 320,000 businesses to start-up.”
But what can businesses do?
So for those businesses interested in securing finance, what is the protocol? Lloyds’ Rob Hall comments: “One of the best places to start when looking to secure finance is with your business plan.
It is important to spend some time creating a clear, strong plan with financial forecasts, clearly thought out for the next three to five years. You will also need to anticipate issues which may require additional finance going forward.
“Showing the profitability of your business in a clear and concise way will stand you in good stead to raise any finance you may need.”
Rob concludes: “The bank will also look to see more formal accounting records – dependent on turnover this may mean audited or confirmed accounts prepared by a qualified accountant.
“A cash-flow and profit forecast will also be needed to show past, present and future business performance and allow an informed discussion around your financing request.”
A view from the trenches
One North Somerset business contacted NSBL regarding the issues it is experiencing accessing finance from the banks.
A business that is projected to hit a £1 million turnover in its fourth year of trading, its Managing Director is frustrated at the amount of time it is taking to access finance: “As a growing business we have found the time it takes to receive a decision from the banks to be a worry.
“Luckily we are in a strong position but for young businesses relying on transactional sales for example, it could mean them going to the wall.
“We operate a positive cash flow model and we are financially sound, therefore it can seem that the conditions for lending set by the bank are very unreasonable.
“There doesn’t seem to be the liquidity in the economy at the moment – we are a sound business with great prospects but there isn’t the support for growth.
“You can seek support from external investors but the lack of flexibility from the banks means that it is an investors market and the rates they offer are not going to always be attractive.”