To lend or not to lend - is there really a question?

The latest of these studies comes from the Business Finance Taskforce, a body established by the British Bankers Association and  six of the UKs major lending institutions in summer 2010 with the remit of analysing the dynamics of supply and demand between lending institutions and UK business.

 

The BTF commissioned market research firm BDRC Continental to interview 5,000 business owners with less than 250 employees and turnover of up to £25million a year for its SME Finance Monitor, a quarterly poll of the sector which is intended to monitor lending to SMEs.

 

Perhaps unsurprisingly the conclusions that the first study has come to is that the banks are really doing rather well on the lending front.  In fact, according to BTF, .ore than half of SMEs who applied for bank credit in the past 12 months were successful, 72% of SMEs who applied for an overdraft had it approved and 59% of SME loan applicants were successful.

 

Happy days are here again?
 

So all's good, yes? Well, there is one other figure that's slightly less sunny. The study revealed that only 15% of SMEs had applied for new credit – or perhaps more importantly thought it was worth jumping through the necessary hoops to apply for credit that they assumed they wouldn't get. 

 

John Walker, chairman of the Federation of Small Businesses, said: "Small firms have been telling us for the past few years that they are fearful of approaching the banks for new finance, or to extend an overdraft, because they know they are likely to be turned down, or be offered a deal on terms that just aren't favourable for them."

 

It's also the case that smaller and younger businesses are far less likely than their older rivals to get a ‘yes’ from their bank. Focusing on small businesses less than five years old which asked for an overdraft, the SME Finance Monitor report admits 46% got what they wanted, 38% were rejected outright, while a further 16% faced issues and conditions, such as being offered too little money, or being asked to secure the loan against their family home. 

 

It's the same story when it comes to that same constituency seeking a loan when less than half (47 percent) were successful, 40 percent were turned down and 12 percent had 'issues'. There's only one conclusion to draw reckons Walker: “The smallest SMEs are losing out, with a third being refused outright when initially applying for new finance. The figure is more than double the bigger SMEs being refused. So the big question is why medium-sized companies are getting a better deal."

 

 

On the other hand, the  British Bankers' Association reckons it's just not that simple. "The picture is also complex with many customers clearly still concerned about the economic climate and so are less inclined to borrow," said a spokesman. “Most businesses are able to get the credit they need.”

 

Since the banking crisis began, banks have come under fire from entrepreneurs, small business associations and leading politicians including Business Secretary Vince Cable for their supposed reluctance to support struggling SMEs. Under the Project Merlin agreement the main banks agreed to lend £19bn in the first quarter but handed over just £16.8bn. 

 

But the banks themselves have repeatedly insisted that they accept more than 80% of applications with the [taxpayer-owned] Royal Bank of Scotland claiming that its personal record is as high as 85%. 

 

But it seems clear that the trust issues remain between the lenders and the SME would-be borrowers. “It’s concerning that far fewer SMEs are confident about receiving the funding they apply for over the next quarter than those who actually got what they asked for last year,” commented Katja Hall, CBI chief policy director. “This shows that banks need to work hard to build stronger relationships with their smaller business customers.”

 

Indeed they do. Two other studies leave final food for thought. The first, from Investec Bank, found that hard pressed SMEs are turning to raiding the piggy bank to keep afloat wth 15% of firms with turnover of £1m or more have dipped into savings, with the average amount taken at £91,310. 

 

Clearly there's only so long that that can go on – a realisation that clearly contributes to the final, ultimately downbeat study of this week which founds that a tenth of SMEs reckon there's a real chance they will go bust by the end of this year. The latest bi-annual Pulse from insurance giant Aviva found that confidence among SMEs in 2011 is lower than ever with only 13 percent of respondents predicting any form of improvement in the UK economy. 

 

“Confidence among SMEs is as low as it has been since the onset of the recession and many feel they are in real danger of losing their businesses should the economy fail to improve this year,” noted David Bruce, commercial product manager at Aviva.  “Looking ahead, there seems to be little change in the tactics that will be employed by small business owners to improve trading – we can expect further discounting, increased efforts to diversify into new product and service lines, and regrettably a reduction in staff numbers.”

 

All of which doesn't perhaps seem quite as complicated a picture as the bankers would have us believe...just fundamentally depressing!