The credit problem for SMEs- you're just not getting it!
I was driving into work this morning listening to 5 Live on the radio, and hearing some good points being made by the chief economist of the British Chambers of Commerce about banks’ on going reluctance to lend to small businesses. Quantatitive easing has helped the general economy, but it still hasn’t eased the credit crisis for many many SMEs. The BCC economist suggested that perhaps the government could arrange a reduction in the interest % paid by the Bank of England to commercial banks on monies on deposit with the central bank- that might get them lending more. The BCC also argued that banks may be exaggerating the risks posed by SMEs.
Why could this be?
Well, in my opinion, and I’ve mentioned this issue before in this blog, it is a sad fact that the majority of small businesses in the UK suffer from an Above Normal credit rating with Credit reference agencies in this country, not because of a mass of negative data but because of the sheer absence of data on file in order to create a good credit score.
SMEs, and accountants that supposedly work on their behalf and in their best interests as professional advisers should be doing something about this poor state of affairs. There is only one answer- SMES must stop looking at credit ratings as a weapon used by large corporates and financial lenders to hit them with, and instead, see them as tools to help them obtain better credit lines. In my opinion, many accountants and government departments have fostered the idea amongst SMEs that “less is best” when it comes to financial performance transparency- look at the law changes over the last few years relating to statutory filing requirements for SMEs as one big example! Even non financial information like how many years a business has been established, and number of staff employed can actually help a credit score improve- but that information has to be fed through to the credit agencies. Yes, governments, banks, insurers can all play their part in helping SMEs obtain more credit- but equally this has got to be a case of “Physician – heal thyself! ”