Don't bank on it
Jul 01 2009
Doublespeak prevails when it comes to banks and small businesses. ‘We’re open for business,’ they cry, only for the latest Bank of England report to show that lending to companies has plummeted to a record low.
‘We’re open for business,’ they cry, only for the latest Bank of England report to show that lending to companies has plummeted to a record low.
Yes, certain banks are lending, but should that really be a cause for excitement and celebration given that they are, well, banks?
Their sole purpose is to lend money and, as things stand, those companies lucky enough to receive finance are getting money on extortionate terms. According to research from the Forum of Private Business, the average charges on interest rates stand at a bloated 6.6 per cent – 13 times above the Bank of England’s 0.5 per cent base rate.
This corporate loansharking is another pressure point that small businesses could well do without.
Jane Walton, owner of an eponymous antique shop, renewed her overdraft in February only to see the bank increase its charges. ‘I can only assume they did this to earn more money, as I’ve been told by them that I’m a low risk. The banks could help us – mine is solvent and has been affected much less than others,’ she says.
If you consider the complete aversion to risk and obsession with personal guarantees, it soon becomes clear that our banks have a long, long way to go if they are to offer genuine support to growing businesses. The bottom line is that healthy SMEs continue to be clobbered as banks prioritise their own interests in order to get out of the mess they have, by and large, created.
When banks talk about rigorously assessing the financial viability of a company on a case-by-case basis, there is a disturbing lack of irony. You can’t help but wonder if the banking elite fully realise just how responsible they are for the current economic crisis.
At the height of the banking boom in 2006, the world’s top 20 banking groups made a joint profit of $200 billion. Moreover, nobody seemed remotely alarmed by the fact the Royal Bank of Scotland had an asset book of $3.7 trillion ($500 billion more than the GDP of China).
If only some of this new found prudence had been applied back then, perhaps we wouldn’t be quite so immersed in this financial mire.
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