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November 2010
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January 2011

Are the banks open for business - lending to SMEs

The Institute of Chartered Accoutants of Scotland recently put together a response to the UK government on the availability of bank fuding for SMEs.    This contains quite a few interesting points, but I was particularly taken on the point about communication.  The banks all say the are "open for business".  And indeed they are - but they're less good at communicating to the SME community what constitutes good, or even tolerably bankable opportunities.  The following quote from the report encapsulates it neatly.


"If the lending landscape has changed and those businesses that see themselves as “viable” have in fact been “downgraded” by the banks to below that line – there must be clear and concise public communication by the banks to let businesses and their advisors know what the playing field is – never mind having it level.

I hope this does not degenerate into the banks looking upon this as “competitive advantage” territory and thus reluctant and/or unwilling to make public what they consider to be “viable” – this will not help and may lead to another “bank-bashing” session – which will also not help.

Banks need to make sure that their staff – from those who are initially contacted to the ultimate decision makers – are well versed in what they are looking for from those SME businesses that approach it for funding. They also must ensure that they apply those principles on a fair and consistent basis."

This explains some of our recent experiences in funding management buyouts and M&A transactions.    We have found that banks have variously changed their criteria for the size of transaction they'll look at for a cash flow loan to support and MBO.   Also many have quite a different outlook for a potential borrower that  is "new to bank".   And its not enough to have a long standing relationship.   One major UK bank which shall remain nameless (clue dark equine logo on a blue and green background) normally known for being particularly good  at supporting its existing customers turned down such an opportunity pretty brusquely.  The reason was actually scale - but the way it was "rejected" has probably lost it the relationship whatever the outcome of the MBO and quite unneccesarily so.