Audits 'not a prerequisite' for SME lending

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.

“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.