It appears, finally, that someone has woken up to the fact that the lenders bailed out by the UK Taxpayer are not delivering on their promises to support the SME sector with business borrowing.
I was tickled by a comment on the BBC news this morning (09/02/10) from a spokesman from Lloyds Bank claiming that they are not lending to businesses as much as they agreed because no one is applying to them. This is wildly off the mark as our experience has proved to us with banks making it fairly difficult to submit any proposition with a better than even chance of getting past their underwriters.
I am old enough to remember when the local bank manager had authority to grant facilities and as they lived on the doorstep they had their finger on the pulse of how their branch interacted and supported their local business customers. They understood businesses and worked with them to move forward.
Times changed as the business lending function was centralised and faceless individuals made all the decisions and the idea of the old “Bank Manager in the Cupboard” (Midland Bank ads back in the 70/80s) went out the window. It was at least starting to revert to the local Business Development Manager (BDM) having a much more hands on approach to local lending, when the common complaint at the time was that these people just got to the point where they understood your business and they were moved on to greater things and you have to tell your story all over again to someone new.
Then came the Credit Crunch (as we have all decided to call it now) and gradually the banks slimmed down their BDM teams and took any small link between small business and the bank decision makers away as EVERY transaction now has a tortuous task through the underwriting process.
We have always aimed to answer these faceless underwriters questions before they even get to ask them and that does mean having to garner much more background information from the client than was ever needed in the past, and these decisions being made about supporting small business are being left to individuals who firstly have never ever run a business in their life (I have always thought it would be a good idea for bankers to be seconded to industry for a portion of their development to see how the other half functions) and rarely if ever would lose their roles by saying no to an application. After all they are only “protecting the Bank’s shareholders”. The skill is in saying yes, and this skill is not being exercised as often as it could be.
The claim is that they are indeed still lending but at what price? Definitely higher margins of at least 200bp above previous norms, double the fees, 40 – 50% shorter terms, much lower LTV’s and it is only the very good companies that can live with these.
My argument is that providing serviceability can be assured with a reasonable amount of headroom and the applicant is clean and paid for, the lenders should be looking to do everything in their power to help and deliver on the commitments made to the Government when they were bailed out in the first place. They are in the risk business after all, and the rewards are very good now.
It just reminds me of Mark Twain’s apt definition “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain”, well it has been raining but the sun is coming out again so let’s start sharing those umbrellas as promised.
