There have been some decidedly mixed messages coming out of our banks lately as, on the one hand, they are trumpeting their efforts in lending more to struggling businesses and householders, while on the other, many small and medium-sized businesses are telling us that their requests are being turned down.
Only last month, RBS announced it was ring-fencing £1billion to lend to UK manufacturers, while Barclays’ profits of £11.6billion suggest some sort of return to normality, but at the same time MPs on the Committee of Public Accounts have recently criticised the two part-nationalised institutions, RBS and Lloyds, for falling short of a legally-binding pledge to lend £39billion.
Here at BKL, certain bank managers who have many years of experience in their banks, and therefore tend to be able to predict which deals will make it past their credit teams, are telling us that their credit teams are refusing some lines of credit for apparently unknown reasons. We think it likely that, despite the positive messages put out by the banks, the directors are telling their credit teams they will not tolerate the levels of write-offs recently experienced and there is pressure on the credit teams to only accept the securest funding lines.
The banks are arguing that they have not been able to lend enough because they have not had enough requests from viable businesses. There may be something in this but, given their increased liquidity and their willingness to lend far more just a couple of years ago, it also seems that their definition of what is ‘viable’ has changed.
Clearly, since it was reckless lending which got many of our banks into the predicament they now face, no-one would want them to lend irresponsibly now, but if they are too stringent in their lending criteria, many small and medium-sized businesses may struggle to survive which could, potentially, drag the economy back towards another dip.
Most crucially, it is likely to be start-up businesses – the lifeblood of any recovery – that are left out in the cold with no means of accessing the funds they need, even if they have a business plan that would be perfectly acceptable in normal circumstances.
I hope that the next year will see a return to more normal lending conditions, but in the meantime, any business looking to secure funding has to try even harder than usual. For more information or advice on securing funding, please do not hesitate to contact us.