Recently, I attended a council planning meeting. This was really eye opening as I had always thought that plans were difficult to get approved. To my surprise, the Councillors discussed the arguments for and against for each application and went out of their way to find reasons to approve the applications.
This got me thinking about how similar this approach was to mine when I was a Business Manager for a Bank. I am used to hearing people say that Banks are not lending or supporting small business. How wrong could they be? Business Managers are targeted to lend money and their bonuses depend heavily this.
- In that case then, why is the public perception that they are not lending? My thoughts around this are:
- Negative reporting in the media.
- A friend of a friend has had a lending application declined.
- They have had a deal declined in the past.
- Just assumed this is the case due to the current financial position in the UK.
Let’s have a look at the reasons why deals are declined in the first place:
A friend of a friend has had a lending application declined.
− The friend of a friend may have had a badly run account or been making losses with no plans to turn the business around and, therefore, they were not able to prove that repayment was possible. They may have a poor credit history. They may have been offered a deal packaged in a way that they did not want to take, e.g. offered a loan instead of an overdraft. There may have been a requirement from the Bank to take security which they did not wish to offer and so the deal fell outside the Bank’s policy. In my experience most Banks will always look for a way to approve requests, very similar to the council planning committee! This friend of a friend however, rather than lose face with their network, would probably have said that their Bank was not supporting them.
The business may have had a lending request declined in the past.
− This doesn’t mean that it will be declined again. When the initial reason was given, they should have also received advice and guidance. Things may be different now, if the account is well run, with payments not being returned, there is enough profit in the business to support the business owner’s lifestyle and the repayments on the finance and there is a good credit history, regardless of security, the answer should be yes (unless they fit in to a business sector that is not favourable, e.g. cheque cashing). No security isn’t usually an issue because, due to the Government/Banks commitment to SME’s, if the Bank deems an application viable but there is no security available the Enterprise Guarantee Scheme can be an option. Under this scheme the government guarantees 75% of the loan to the Bank. The business owner is still liable however and will have to sign guarantees.
Banks are not lending to SMEs due to the current economic environment!!
− Banks have a commitment to the Government to support SMEs. Last year there were an estimated 4.9 million businesses in the UK which employed 24.3 million people. The SME sector is the largest employer in the UK and relied upon for the continuing growth of the UK economy.
Many business owners are embarrassed to ask for lending, in case it’s declined.
− There is really no reason to feel this way. The Manager doesn’t like to say no and, if this decision is made, there would be a justified reason as to why. If it was declined, this could be helpful for the future, as the Manger should explain the reasons for this and what the business needs to do to enable this to be a yes next time. They may put you in touch with a Business Improvement Specialist who could work with you and shape the business so that the decision could be yes in a few months’ time.
So, why are the Banks not supporting Businesses?
The answer is they are!
If you are still unsure as to whether or not you should approach your bank, why not discuss it with us first? We work alongside all the major Banks; we understand their policies and procedures and can help you to package your business in readiness to make an application.