Credit squeeze being applied to SMEs
THE CBI recently painted an improving picture: access to credit was getting better.
Unless you were in the Small and Medium Enterprise (SME) sector. Alas, it seems the banks favour the big boys; and let the small fish go swim. According to the CBI’s latest Access to Finance Survey, SMEs saw a moderate decline in the availability of existing credit lines and expected a similar tightening over the next three months.
Commenting on the survey results, Richard Lambert, CBI director-general, said: “Smaller and medium sized businesses are still facing challenging credit conditions and have fewer funding options open to them than big companies. We hope that over time their credit supply will improve.”
I think we’d all agree to that. Lack of cash is also having a lamentable result on viable small businesses. The Forum of Private Business suggests that soaring insolvencies are due to one thing only: lack of cash.
The FPB’s Phil McCabe said: “At the moment, we are seeing apparently viable businesses of a certain size or industry sector labelled as ‘high risk’ by some banks, which then refuse to lend to them, and others forced to pay a lot more for finance.
“We want a return to ‘relationship banking’ – creating strong links between businesses and lenders so that regional managers can judge lending risk accurately, on a case-by-case basis,” McCabe added.
I think this would be a welcome step in the right direction. Local managers should know local businesses. Let’s see if they listen.
Meanwhile, the big banks are shunning the personal contract hire (PCH) and lease market, often used by small business owners – funding cars privately and then reimbursing mileage through the tax-free AMAP system. It’s easy to administer; you benefit from low monthly rates; and there’s the opportunity to swap cars every three or four years. It’s how my wife Alison, a co-director of Business Car Manager, funds her Fiat 500. It’s on a PCP deal.
Anyway, back to big banks and shunning small businesses. There’s more on this in my editorial to the latest newsletter – issue 57. And the excellent piece by Peter Leyden from National Automotive. I suggest you read his special report: Is the personal car lease under threat?.
It seems the large, bank-funded contract hire and leasing companies are walking away from this sector – and leaving it to car makers and car leasing brokers. And it’s the latter that often enjoy the close relationship with local businesses that FPB wishes the banks enjoyed.
But it’s not science is it? Local businesses doing business with local businesses – because they understand each other through talking. It’s called a relationship. But are the big banks listening?
