Banks ‘still not helping SMEs enough’ – IoD boss

MANY small firms have given up on the banks and have halted expansion plans and the creation of new jobs, according to John Rider, the West Midlands chairman of the Institute of Directors.

Mr Rider said the crisis undermined the Government’s intention to stimulate a  planned private-sector-led recovery. A new IoD survey of 899 company directors across the UK has revealed that businesses across the country are still having difficulties. One in three that had applied for finance in the six months covering January to June was declined by its bank.

Overall decline rates were going down, but  was evidence that lending criteria had become more restrictive with regard to the amount of security required as more businesses reported an increase in the amount they were being asked to put up to secure lending.

Mr Rider said: “To some extent our members have simply given up on the banks and what was a traditional service. They don’t bother applying any more. Once a manufacturing firm might be able to borrow at say two and a quarter over base to finance expansion or new machinery. Now the banks are demanding an arm and a leg … and often a bit of your house too.

“If the Government, together with the banks, does not get this sorted out then its hopes for a private sector-led recovery are in jeopardy.

Banking leaders in the West Midlands have rejected Mr Rider’s analysis, saying they are open for business and lending was increasing.

But Mr Rider said: “Globalisation is creating real opportunities for relatively small businesses and our banks must provide services to match their ambitions – we must increase our exports.

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“Amongst all of the political turmoil, it is too easy to forget that our global economic problems were triggered by a huge banking crisis. We, however, must move on and our banks have to recognise that they need to take really positive moves to reform – if they don’t make the running the Government will have to act swiftly.”

Mr Rider said the situation had largely remained unchanged for two years and he blamed former Business Secretary Lord Mandelson for being taken in by bank bosses in the capital.

He had visited Birmingham in November 2008, was told there were big issues locally and did nothing about it. “He did not get the message that the banks locally were effectively closed for business – here we are nearly two years on and not a lot has changed.”

And Mr Rider added: “Banks are now in much better shape but they are not really acting in the public interest – supporting business is key. The challenge in the West Midlands is to create more jobs but that is being put at risk.

“The best way to improve access to finance in the longer-term is getting a lot more competition into the banking sector. Only when firms can choose more easily where they can place their business and switch banks will we have a banking sector that is better focussed on the needs of business customers.

“But in this region we cannot afford to wait – business confidence is fragile – we have some very talented people in the banking sector in the West Midlands and we need them to provide strong leadership to influence Government to enable realistic reforms.”

But major banks in the West Midlands rejected the accusations that they were turning their backs on businesses.

Peter Ibbetson, Chairman of NatWest and RBS Business Banking, said: We are very much open for business and are currently approving 85% of all business applications for credit and we’re always looking to improve on that figure. We are currently providing new loans to over 5,000 businesses a week and are actively stepping in to support our customers.

“We are also leading the field in taking applications for the Enterprise Finance Guarantee scheme, with over £365 million worth of loans already drawn and approaching a total of £400m of loans offered.

“Whilst this is the case, many companies are looking to reduce their debts rather than increase them and our own survey of SME’s shows that only 18% are looking to increase borrowing, when 20% are looking to reduce.

Keith Webb, Regional Director for the West Midlands at Santander Corporate Banking said: “There is no doubt that over the last two years lending capacity has been constrained by a combination of the weaker economic outlook and the impact this has had on businesses prospects and trading, together with a decline in availability of funds as some providers lowered their appetite for risk and increased the amount of capital they hold.

“It is vital for the long term success of a business that lending is considered and sensible. Some providers are continuing to increase the support they provide to businesses, Santander for example, has remained very much open to new business and in the first quarter of 2010 increased lending to UK SMEs by almost 20% and by significantly more in the West Midlands region.”

“I would encourage all businesses who believe that their lending needs are realistic and are not being considered correctly by their existing bank to speak to other providers, for a second opinion.” 

 

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