Bank and SME relations grow friendly as small businesses improve their understanding of finance

The seventh Finance for Small Firms Report, claims the relationship between banks and small firms has improved with the result that banks are less likely to loose on loans to SMEs.It also says confidence in the small business sector is up with a parallel record increase in total lending up to £37.1bn, and a fall in dependence on overdraft arrangments.However, Eddie George, governor of the Bank, said there was more scope for small businesses to use equity financing.He said: ‘During the 1990s there have been a number of encouraging trends in the financing of small businesses.’Of particular note has been the growing sophistication of such businesses in utilising a range of different financing tools, for example the combination of traditional bank finance with asset-based receivable finance.’This move has helped to increase the flexibility and resilience of these businesses. ‘There may be scope, however, for more small firms to consider the potential advantages of equity finance.’Net bank indebtedness of the SME sector has continued to fall reflecting a marked pward trend in deposits which reached a record high in September 1999 of £35bn.