ART: Stop bashing the banks and think of another solution
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Steve Walker is Chief Executive of ART (Aston Reinvestment Trust) : Are the banks willing to lend to small businesses or not? The debate continues. The banks say they are lending more than they were. The Government doesn’t believe them. Barclays locally has stated that firms are not keen on borrowing; instead they are busy battening down the hatches. The problem here is that the banks are mostly talking about the deals with businesses at the upper end of the small to medium sized (SME) market – those with a turnover of around £5m – as well as larger businesses with turnovers well in excess of that. Actual customer numbers are small, the businesses are mostly well established and their appetite to borrow and invest in the present economic climate, as Ray O’Donaghue from Barclays Corporate stated in his recent report, is low. At the other end of the SME scale, however, where over 99% of businesses in the UK are by number, a different picture emerges. Demand is higher, but the risk is also higher, so these are the businesses unable to get support from the banks. They are not being assessed according to individual circumstances, but are failing to make the grade determined by blanket policies or credit scoring criteria. In the last few years most new micro businesses have been advised that they would have to wait for at least a year before a loan would be considered – that is not granted, just considered. Even many established businesses, as has been widely reported by trade bodies, are seeing their requests to invest in growth turned aside. Is it any wonder then that the majority of UK start-up small businesses are funded by family or friends and that the latest reports indicate that 65% of businesses are supported by personal credit card finance? We are now in a very tricky situation. The banks are being urged to ensure that they are financially secure in order to prevent another credit crunch scenario – so they are particularly risk-averse when it comes to lending. The Country needs to drive down debt and reduce public sector spending – that message is now clearly understood and in itself is causing fear and a lack of confidence in investment and taking risks. The politicians say that the only way out of the current economic downturn will be a private sector-led recovery, with more small businesses starting up, more investment and more private sector jobs. But where can they go for finance? Since launch in 1997, at ART (Aston Reinvestment Trust) we have lent over £9m to small businesses in Birmingham and Solihull, which in ALL cases have been unable to obtain their full requirements from the banks. In the West Midlands, members of the Fair Finance Consortium, including ART, are now lending over £5m a year, with public sector support, to any business declined by a bank even in part. Nationally the Community Finance sector, of which ART is a part, last year lent over £35m to what were considered to be the highest risk cases – many micro start ups and businesses operating in disadvantaged communities and sectors. And most have flourished, not failed! So instead of pressing the banks to lend more directly, which does not make commercial sense for them, perhaps it’s time for a new plan. Why not press the banks to support specialist intermediaries, designed, with public sector support in line with policy, to take a higher level of risk and a more relationship-based approach to lending to small and micro businesses? In that way, we could see everyone working together for the common good. Now wouldn’t that be refreshing? More articles in
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