Finance still critical

I found some interesting research recently that reported on the issue of banks not just refusing to lend but seeking to change original loan terms, which was directly in line with my experience.

One SME business that I am advising approached their bank to extend an overdraft in order to buy out a director and secure succession for the business but found that this request was not only refused but the original overdraft was reviewed and withdrawn.

The results from the Mishcon de Reya survey suggest that this is not an isolated problem with more than half (51pc) of respondents saying that their biggest issue with their lender involved attempts to increase margins on loans, while 41pc identified additional fees.

Clearly there are not enough alternative sources of finance available and we are facing a significant funding shortfall unless non-bank finance channels are opened up to small and medium-sized companies.  This view was expressed by Mr Breedon, who led the government backed taskforce into bank lending.  He also predicts that the shortfall could be as much as £191bn within five years.

SMEs are constantly referred to as the driving force behind the UK’s economic recovery with figures from the FSB suggesting they are responsible for 48.5 per cent of the UK’s turnover but without support they cannot deliver much needed growth.

I hope that the professional bodies and organisations that represent the SME sector will continue to lobby government on this matter and that some of the recommendations made in Mr Breedon’s review will be progressed.  In the meantime our experience is that more and more businesses are now looking into peer to peer lending which, whilst potentially being more expensive is proving to be easier and quicker to implement for smaller SME’s.

Incidentally there was a happy ending for the company used in the example above, after finding an alternative source of finance, their bank  had a change of heart and was able to offer the required extra funding after all, proving that it is always worth challenging the banks decision in these circumstances.