A blog by Martin Williams, external affairs spokesman of Graydon UK, focusing on business risks - from fraud to late payment. Martin has has spent the last 35 years in the credit information industry, and has been with Graydon UK, one of the top five commercial credit agencies in the UK, for the last 20. Apart from his PR duties, he teaches credit analysis to risk professionals and helps educate SMEs on the importance of maintaining a good credit rating. Martin is a Fellow of the Institute of Credit Management and is a sitting member of the Institute's Think Tank. He was also honoured by Credit Today, after being included on their Credit 100 list of people who have had the greatest impact in the credit industry during 2008, 2009 and 2010.
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02 Feb 2010
Some say they are.....A lot say they aren't..... but the debate as to whether banks are lending to SMEs during this ongoing economic crisis rumbles on. There must be a whole load of reasons why some SMEs succeed in persuading banks that they are worth the punt, and then again, a number of reasons why banks turn down loan applications.
I was down in Westminster the other day talking to a Trade Credit insider at the government's BIS department to learn of one big reason that prevents banks from lending. Apparently, from evidence that the banks have shown to BIS officials, its clear that many applications from SMEs are woefully inadequate. Which raises a big question in my mind...... are SMEs trying to obtain advice from accountants on how to pitch for a business loan i.e. what should a loan application be supported with (management accounts, cash flow forecast, breakeven analysis, yearly business plan?)
If SMEs aren't asking for this advice from their financial advisers, they should be. Many business owners are good at what they do on a day to day basis when running their businesses, but pitching to a bank for a loan in this economic climate calls for a degree of expertise that I would guess sits outside the average SME owner's comfort zone. Perhaps accountants should come forward a bit more to proactively market this type of service to the SME community, as clearly, there is a gap in the market that needs filling. Maybe some accountants are helping their small clients obtain bank support by offering advice on shaping a loan application. If you do, I'd like to hear from you because i reckon you're the exception to the rule based on the evidence I can see.
Visitor comments
....we have been doing this on a regular basis here in wales, applying for govt funding too.....but over the last few months the managers of several of the big names are just not responding to requests. Under the Enterprise scheme they have to be involved from the start......they now just appear to be ignoring us !!
Posted by: Viv O'Hara , 02 Feb 2010
I think you are right on the nail here Martin, this is certainly our experience.
Whilst banks are reluctant to lend the quality of the proposal is even more paramount and the majority of smaller business owners do not have the skills to get that right. We have assisted a number of clients with varying levels of success. The quality of the proposal goes further than the information supplied and how it is presented, the business itself must be a good proposition. That is often the catch!
Our experience also is that it is very important to continuously develop the banking relationship. Keeping the relationship manager informed all the time gives huge confidence, especially if he/she receives regular good quality monthly management accounts and the business consistently delivers what is says it will. Producing forecasts that are credible is all part of the mix.
However, even in this environment business owner managers still seem very reluctant to seek help.
Posted by: Garry Mumford , 03 Feb 2010
Absolutely right both Gary and Martin.
Would just add that whilst the personal relationshiop is still very important, the supporting M/As and other reports have taken on greater importance as front line bank managers are having to report more to remote managers, who in turn are increasingly reliant upon computers for their decisions!
The relationship manager is no longer able to make subjective decisions which is no bad thing when you consider the quality of some of those which have been made in the past.
I do see Business Link taking a more active role in promoting the services which we are talking about.
Posted by: Crispin Read , 03 Feb 2010
Many of the bank managers around here are quite good. When their customers hand in badly prepared management accounts / proposals instead of just refusing the loan they urge them to speak to their accountants.
The good ones know my partners by name and do seem to value our firm's stamp, despite all the usual disclaimers. Part of that is they trust us, but also they are looking for good financial acumen to be part of the mix somewhere, whether it comes from the owners or their advisers. Clients who have management accounts prepared regularly do get more frequent and more detailed advice along with that.
When a business isn't making much money however it's unsurprising that they want to minimise any costs. It may be a sensible decision if the information produced is not being useful however the cost seems very small in the context of something as critical as renewing a loan.
Posted by: Dave , 03 Feb 2010
I think the answer to the original question is a very definite Yes! (Sorry Francie, not sure about Wells fargo but most Banks are broadly the same).
Accountants can do a lot more to help businesses get the finance they need, but then so can Bank Relationship Managers, many of whom are not well enough equipped to deal with this economic situation.
I speak having seen it from all sides as an Accountant (CIMA), a former Bank Senior Relationship Manager with a portfolio of over 800 business customers and as a former Associate Director, Lending with a major UK Bank who approved loans from £1k - £125m.
While some Accountants are right up there providing top quality advice, many others are falling short and are struggling to understand what a Bank actually needs. Sometimes it is not all their fault and it is down to a poor Bank Relationship Manager who cannot communicate what he / she needs so they can assess the 'viability' of a Business. (Does everyone know what exactly is a viable business anyway and how do you go about proving that to a Bank?)
As a business owner myself, I now advise other owners and Accountants what they need to present and how they need to present it. It is not just about trading information and cashflows.
Finally, despite what the media and politicians are saying I believe the Banks never stopped lending, they just made the process more difficult and Accountants need to rise to this.
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