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19 Apr 2011
BANKS are "relaxed" in the face of a proposed increase to the statutory audit threshold for SMEs, the British Bankers' Association has said.
Assistant director Brian Capon was unperturbed at the prospect of increasing the pool of audit-exempt firms, saying banks generally lend on the basis of different financial information. Namely, working accounts, which Capon says are often quite sufficient for forming a view of a company's monetary position and whether it is a viable borrower.
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"Banks these days hold much more information on companies than they did several years ago, and this is generally enough to make a judgement", he said. Even businesses with a turnover of up to £25m could secure finance without an audit, especially in cases where the prospective borrower uses other bank facilities such as accounts or loans.
Capon pointed out existing clients will already be attending regular meetings with lenders to update them on the company's progress, from which a decision about further financing can easily be made. Additionally, looking at payments, overdraft use and items going through accounts provides "an accurate picture", potentially making audits obsolete.
The BBA predicted audits would only be required in cases where the loan application was for a very large sum, or the decision was "finely balanced". This supports Vince Cable's calls for an audit threshold set at £25m, which he claims would free SMEs from the burden of reporting, without a significant loss of financial integrity.
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Visitor comments Add your comment
Not sure I agree
I trained in audit & specialised in CF after qualifying. And over the years as I've seen the audit threshold increase, I've also noticed that companies accounting records & management controls have got steadily worse for smaller companies.
The audit is as much about encouraging 'best practice' for owner managers as it is about any formal check on the figures.
And as the most commercial accountants & business advisors are always trying to teach SMEs, you need to have the latest information (financial & non-financial) at your fingertips to be able to run your business to the best of your ability.
And now as a CF advisor to SMEs, the comment from BBA just makes me laugh! A pre-lending investigation looks at many different things to an audit. He's comparing apples & pears.
Kirsty McGregor
Founder, The Corporate Finance Network
Posted by: Kirsty McGregor, 19 Apr 2011 | 13:40
Cash flow financing
Critical amongst most SME lending is the issue of cash flow finance. Given that there is a "double credit crunch" (i.e. not only banks but also large corporates delaying payment terms to SME's for up to 90 days), there needs to be a solution for this as well. It's good to see that the private sector, rather than Project Merlin (!) are coming up with innovative solutions. One such solution I think is very exciting is the market place for invoices, http://www.marketinvoice.com - given that not all SMEs are willing to invest in a time of uncertainty, cash flow finance is definitely one way forward.
Posted by: John Smithwick, 30 Apr 2011 | 19:39