Members of the UK200Group of independent chartered accountancy and lawyer firms have today commented on BoE MPC member Adam Posen’s interview with the BBC where he states that banks are not lending enough to SMEs.

Mr Posen said the need to increase capital reserves was no excuse to lend. He also dismissed banks' defence that there was little demand for new loans.

Mr Posen questioned whether if bankers were "reluctant, risk-averse jerks", or if there was a more fundamental problem.

Andrew Watkin, Baker Watkin

“In my view it boils down to the "C" word - Confidence.

“As we know, the larger Companies are sitting on piles of cash but are not investing as they see a few number of opportunities at present.

“If the bigger companies are not investing, then why would smaller ones want to do the same?

“There are alternative methods of funding. For example I came up with a list of possible funding for a client who had exhausted banking facilities. These have not been pursued yet as the bank are currently reconsidering their position and will hopefully lend to the client where there is no real tangible security. The business model works but needs more resources to drive it forward. Product and market having been proved.

 “Where there is a good business and the borrowing is required for the business reasons rather than to meet income tax liabilities of the owner, then in my experience the banks will lend but they are very nervous about other reasons for lending.

“I am seeing an increase in the preference for asset backed lending and invoice discounting is being used to provide hard-core borrowing which does give me some concern. The banks will be pushing this type of borrowing in future and will be pressing the benefits onto customers despite the drawbacks which we all know about.

“I was with a bank earlier this week who said that of the proposals that come to them at local level 70-80% go to Committee of which 90-95% are accepted. OK they do their homework first but in terms of numbers they believed there were around 3,000/4,000 proposals a month across the UK Network.

“However, another manager has said to me that now is the time to borrow as it will be more difficult and costlier to do so in the future.

“Mixed messages!

“Yes the banks are being cautious but why should they lend to unviable business? Once the confidence returns then there will be an upturn.”

Will Abbott, Randall & Payne

“I don’t think describing bankers as “risk adverse jerks” is helpful, particularly when it was not long ago that bankers were being described as “risk junkies”.

“We are having success with raising funds for SME in most sectors including construction and property development. The key to this is clients and banks being realistic and flexible in their approach – it needs a change of mindset on both sides. So, for example, we are seeing factoring as a good option but are finding that often clients initially do not understand this or how it works. Factoring can be the answer where overdraft funding is not – but this requires the client to accept this alternative approach.

“On the other hand we have had Banks reject applications solely for lack of security when the client is not prepared to put up their own property as collateral. The EFG has been a useful alternative and it is perhaps surprising that the Banks have not offered this option more widely. It does require them to be flexible and to see other options rather than simply saying no.

“At the moment I think some clients submit applications based on overly optimistic forecasts with no real security or vision of their business, and then simply blame the banks when it is rejected. But I do believe there is a feeling that applications will be rejected and are therefore not made. The Euro crisis has again undermined confidence so businesses are delaying capital investment and the loan applications needed to finance them.

“What you would hope for from a member of the MPC is a balanced view and some constructive comments aimed at bringing businesses and bankers together, rather than headline grabbing rhetoric that contributes very little to the solution.

“The role for professional advisers is to build closer relationship with SME and bankers to ensure there is a meeting of minds, which is exactly the kind of role UK200Group advisers are now taking.”

Daniel Shear, Berg Kaprow Lewis Corporate Finance

“Whilst I don’t think Project Merlin has worked as such I also think people are sometimes too quick to jump on the bandwagon of criticising the banks.  No one really wants another large bank to collapse – that would be a disaster for the economy – so banks do have to be prudent in their lending criteria. 

“Capital commitments and Basel III criteria aside, it shouldn’t really surprise people that it’s more difficult to access debt finance than four years ago when some of the bank lending was nothing short of reckless.

“Whilst the reaction to that has perhaps been too much of a swing in the other direction the banks are still lending to SME’s with a viable business plan, strong management team and where the bank can assure itself of security and serviceability. 

“We’d all like the banks to make more funding available to SME’s but also it wouldn’t be sensible to go back to the way it was before the credit crunch.”

www.twitter.com/uk200group

Established in 1986, UK200Group is the leading mutual professional association of independent quality assured chartered accountancy firms and lawyer firms, with over 150 offices throughout the UK as well as 50 International Associate member firms around the globe. UK200Group provide services and products that are designed to enhance the business performance of its members.  Telephone 01252 401050, email admin@uk200group.co.uk or visit www.uk200group.co.uk 

Disclaimer:

UK200Group is an association of separate and independently owned and managed accountancy firms and lawyer firms. UK200Group does not provide client services and it does not accept responsibility or liability for the acts or omissions of its members.  Likewise, the members of UK200Group are separate and independent legal entities, and as such each has no responsibility or liability for the acts or omissions of other members