Is a lack of access to funding the number one issue for SMEs today?
Stephen Alambritis, head of public affairs, Federation of Small
It has been very tough from October last year, right through to mid-April.
Access to money is key for those small businesses; access to money to survive,
to improve cash flow, to get over these very, very difficult times. You have the
lethal cocktail of trade down and costs up, so it has been a huge issue.
Things are improving; banks are beginning to relent and relax. But it’s been
slow. The average age of a bank manager is 44. They haven’t been through a
recession before and were very concerned for their own position, let alone
helping out small businesses.
We estimated 36,000 small businesses would close through out the whole of
2009, so it was not as bad as the early 90s. In 1992 I believe 52,000 small
businesses closed, so I guess a number of small businesses are dipping in to
their war chest. In October of last year they used up £900m rather than go to
the bank because they were concerned about flagging a problem with their bank
We want to get to the situation where viable small businesses get the money
they need. Almost 90% of small businesses are locked into the four major high
street banks. That’s why the relationship is important and that’s why it’s got
to be at its optimum for the good of the economy. When that relationship breaks
down, we all suffer, so hopefully we should be on a road to a good relationship
now between banks and small businesses.
What are the tools SMEs need to survive the recession?
Steve Priddy, technical policy research director, ACCA
One wonders to what extent banks have failed to lend simply because their own
internal commands that control their procedures are not set down. We’ve had to
go through a lot of pain and business owners have to rebuild this confidence.
Certainly our members are finding that they are a trusted confidant and they are
the ones who are helping to put together business plans, helping with all the
management accounting and helping to put together all the things you need to run
a small business well.
We know that good business owners treat financial records and financial
management accounting with the seriousness that it needs. It’s not there as a
luxury but to help you steer your way through. The fact that you file a set of
accounts is the end of quite a significant process which is a very valuable and
What’s interesting is that we have lived through this nice decade, with no
inflation and constant expansion, and perhaps all of us have become a bit flabby
about the things that we should have been doing.
The audit profession is talking about the difficulty of going concern and
evaluation. That’s always been around and it’s always been the responsibility of
the board to ensure their business is going to be around for the foreseeable
future. Similarly, it’s always been the case that credit insurers need a lot of
information about the business.
It’s the same with the access to finance. You’ve got to have cash collection
processes in place and you’ve got to follow them through. There is significant
evidence that there is a fraction of the SME sector that is doing ok because
they’ve had these processes in place and they’ve been following them through.
They will be the ones that weather this storm.
How can banks and credit insurers move from using historical information
Martin Williams, managing director, Graydon UK
The recession came on us so quickly and violently it caught banks and credit
insurers on the hop. They’re using normal information channels that they both
use to assess credit risk. But looking at the normal channels wasn’t good
enough. How many risks were out there that they didn’t understand?
When you’ve got that fear in place you’re going to get jittery and probably
start to pull cover in many more places than you should do.
When it comes to trade credit insurers there’s been a pulling of trade
insurance cover, not just affecting SMEs but affecting big companies as well. I
think we’ve seen the worst of the pulling of cover; the cover’s already been
withdrawn in most cases, I don’t see too much more cover being pulled from the
position that they’re in today.
The credit insurers have really got to re-examine the models that they’ve
used for many, many years. We’re entering a new era of transparency.
Transparency of financial performance, for example, has always been the case in
exchange for limited liability. It’s always been part of corporate reality.
In this era, this fast moving economic situation we’ve had in the last year,
people have begun to question the validity and usefulness of this so-called
‘historical’ information at Companies House.
That historical information is still extremely useful and I’m not advocating
the closure of Companies House.
What I think we have discovered in the recent months is that there has got to
be a need for more up-to-date information in this economic environment. Credit
insurers and banks have every right have always had the right to ask for
management accounts information. They’ve done it for decades, it’s just within
the last six months or so it’s been done on a grand scale, that’s the
Up-to-date management information if you can believe in it and capture it
in a structured way is the breakthrough I think people are looking for in the
credit-granting world. And we’re working on that.
Chaired by Damian Wild
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