Friday 16 March 2012

Bank lending to SME's during the crisis

Two recent personal experiences that illustrate the continuing difficulties experienced by small businesses.

I am a trustee of a charity that has a trading operation and (informally) asked its bank manager for an increase in its overdraft to cover the normal trading ups and downs. The important points to note are these; the business has traded for twenty five years, during which profitability has ranged between 5% and 10% of turnover; the increase asked for was from 1.5% of turnover to 3 % of turnover. So the request was for a modest increase. The response was a 'no', delivered in terms that suggest the bank is simply not lending to small charities and, by extension, to small businesses. The message, "you have to manage on your own".

We have a friend who is Finance Director of a large private construction company in Italy. We all know from the news that Italy is experiencing significant economic issues but trade has not stopped: we are not talking about economic meltdown, only about long-term funding issues. By their nature, construction companies need external financing because they get paid only after they complete large scale works and, even then, there are retentions to the end of the contract. So finance is critical but, nonetheless, it is a surprise to find that our friend spends virtually all his time dealing with the banks.

My conclusion: bank protestations that they are lending 'as usual' to small businesses are not true. Their figures that purport to show that small businesses are not asking for funds are bogus because the applicants are headed off before they can make a formal request. The lessons...be assertive, shop around, rigorously and frequently reforecast your cash requirements and produce the very best business plans you can.