Supply and demand
Mar 18 2010
The reason lending to businesses plummeted to an all-time low in January is due to lack of demand, so say the banks.
This isn’t exactly the full story as to declare there’s no appetite for borrowing when the terms of lending are so tough is a bit like saying someone isn’t hungry just because they can’t afford what’s on the menu.
It’s still tough out there. Jeremy Ward, managing director of property management company Incentive FM, tried to get funding for an acquisition but found his bank reluctant to finance the deal. After a long process, Ward finally arrived at a deal where the bank agreed to put up £500,000 through the government’s Enterprise Finance Guarantee scheme and £1 million through invoice discounting.
This proved to be a false dawn. ‘At the 11th hour it transpired that the bank would only lend us the money if they could block payments to our suppliers if they deemed it necessary. So in the end we decided not to use them.’
‘In my experience the banks are not business people, they don’t understand the commercial reality of companies, are constantly looking backwards and have no feel for their opportunities. Once we proved ourselves, they became interested in lending to us.’
The counterpoint, of course, is that traditionally banks have always looked for a strong track record (credit crunch aside). Peter Ibbetson, chairman of small business for RBS, says fewer businesses are approaching the bank for loans and are on average asking for around a third less money than a couple years ago.
‘It’s true that we are asking businesses a lot more challenging questions, but hopefully this is having the affect of making them really assess what the money is for,’ he says.
While it’s hard to fault the banks for being cautious in some respects, anecdotal evidence suggests that many viable businesses aren’t being offered the support they need. A recent poll found that 20 per cent of businesses that were refused bank loans had no idea why.
Rejection is never easy to take and no doubt many businesses do deserve to be turned down. However, it isn’t sustainable to keep refusing growth finance to those companies which warrant financial support. And doing so certainly makes the lack of demand argument start to sound a bit thin.
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