The Forum of Private Business is calling on the Chancellor to remember that the problem of funding for smaller firms is still far from resolved, despite the recent ‘Project Merlin’ agreement on bank finance.
While welcoming the target of a 15% increase in lending to smaller businesses outlined in February’s agreement, the Forum has pointed out that many banks claim that the demand for credit from SMEs is subdued.
As a result, the not-for-profit business support organisation believes that in order for the banks to meet the new targets, steps have to be taken to simplify the lending process.
In its recent Budget submission – A Budget to Get Britain Trading – the Forum argued that the Government needs to implement measures to make the process more transparent, flexible and ensure it is inexpensive for SMEs to use.
This may well require a relaxation in regulatory law to allow relationship managers to make lending decisions on a local level, along with the creation of clear timelines for application processes and a clarified complaints process for SMEs who wish to object to the rejection of an application.
This, the Forum believes, will help undo the sense of disillusionment expressed by many business owners towards the issue of bank lending. It should encourage applications both from businesses turned down for finance in the past and from SMEs which have never applied for bank lending due to doubts over their chances of being accepted.
The Forum’s most recent Referendum ballot of members, which was carried out in December 2010, found that funding is still a huge issue for smaller businesses.
Unprompted, 24% of Forum members said better regulation of the banks and finance should be the priority for their elected representatives. Referendum also found that finance has become an issue for an increasing number of SMEs, despite fewer businesses reporting cashflow issues.
Commenting on the issue of small business finance following the Merlin agreement, Forum chief executive Phil Orford asked how the banks intend to increase the flow of credit to smaller businesses if, as they claim, demand for lending is down and all viable lending applications are already being accepted.
Mr Orford said: “The banks say demand is down. They say applications are running at an 80% acceptance rate. If this is the case, how do they intend to increase lending to small firms by 15%?
“I believe the answer is that they must review risk criteria and be less punitive on viability assessments – and make a particular effort to cut down on sector-based discrimination.
“The banks must be more proactive in securing up-to-date financial information from their clients and they need to communicate more clearly to applicants what the key assessment criteria are, so applications are more compliant with the lenders’ needs.”
Commenting on the need for an accessible appeals process for businesses to turn to when they feel they have been unfairly denied loans, Mr Orford added: “We want to see a review process which is truly independent and overseen by a credible figure drawn from the business world.
“It is also vital that the process takes place in the public domain as much as possible and subject to regular scrutiny as a certain degree of transparency is needed in order to gain the confidence of the business community.”
In the Forum’s Budget submission – which is based on principles outlined in its new campaign, Get Britain Trading – the organisation also calls on the Government to:
• Clarify forthcoming lending data criteria to ensure it is as transparent as possible. The new independent Bank of England regulator should ensure this data distinguishes new from existing business lending, including a specific distinction between businesses that have sought finance for the first time and business that have simply changed their financial provider, to ensure those changing banks are not counted as ‘new’ lending.
• Ensure better signposting from banks to other institutions (e.g. venture capitalists) to support businesses looking to grow rapidly. The Forum would also like to see better provision for competing funding organisations to enter the market and compete.
• Support and encourage better payment practices.
• Provide clarity over the operation (and future of) the Business Payment Support Scheme, along with other cost-reduction/lending/financial schemes like the Enterprise Finance Guarantee and Working Capital schemes.
In its Budget submission, the Forum also calls for the Department for Business, Innovation and Skillls to use intelligence provided by British Bankers Association research to hold the banks to account.
The Forum also argues that the new Bank of England regulator should set specific timelines for decisions to be made on lending, written feedback to be provided on loan rejection and the time for an internal escalation within the bank to be made transparent.