Put simply, failing to find a way to improve these crucial relationships will be damaging for business owners, their banks and also an economy that remains extremely fragile.
Banks are saying that lending demand is down but many Forum of Private Business members are reporting a continuing, pressing need for affordable growth finance. I think the truth is that small businesses are increasingly being alienated by the often unrealistic risk criteria and steep costs they face when approaching lenders.
They are turning away, perhaps in droves. But the question is: what are they turning to? Clearly, the few innovative funding organisations that have emerged in the wake of the credit crunch, including the peer-to-peer social lending platform Funding Circle and Funding Store, a commercial finance ‘supermarket’, struggle to gain a toe hold in finance markets dominated by the big banks.
The Office of Fair Trading has looked at this. The Government is also seeking to bridge one clear funding divide – where businesses are seeking investments of at least £2 million – in the form of its new Business Growth Fund. Unfortunately, the credit requirements of most firms are a lot less.
This is where banks should come in. However, fewer and fewer regional branches and the erosion of local bank mangers’ lending powers means many small businesses are being automatically deemed ‘high risk’ and the cost of loans that are granted reflect this.
So high street banks have to up their service levels to provide what businesses need. But there is another side to this coin. We are in a new era where the days of easy finance are gone. Now business owners – and their accountants – must up their game.
One major criticism made by banks is that the financial information they are given by entrepreneurs seeking funding is often confused and unclear. Now, owner-managers simply have to provide the right kind of standardised financial data that establishes just how creditworthy they are.
Help is at hand via the Forum’s Finance Director business support solution. For more information, call 0845 612 6266 or visit www.fpb.org
