Thursday 12th April 2012
By Angela Knight, Chief Executive of the British Bankers’ Association
This was a Budget for business. More than that, it was about making it more attractive to do business here in the UK. It was also about giving companies the confidence to invest in their futures and giving their customers the confidence to spend again.
And it was about giving our international trading partners confidence that the country is fully focused on restoring financial stability and promoting economic recovery.
We should remember that the UK moved further and faster to strengthen its banking system, recapitalise and reform than any of its international competitors. Throughout, the banks have been able to provide loans to viable businesses.
The Chancellor was addressing the issue of confidence among our smaller businesses-the SME sector-well before he made his Budget speech. And the National Loan Guarantee Scheme announced on the eve of Budget Day was specifically designed to give confidence to those small businesses hesitating from applying for a loan from their bank.
There are some welcome indicators that the economy may be headed for sustainable recovery. But still businesses are uncertain about the future, and at this stage they are paying back loans and overdrafts very fast indeed. Confidence-or rather lack of confidence-is the main cause. Where there has been a significant drop in the number of a business’ customers, the likelihood of those customers coming back in the short term is not good.
Given that the issue is one of confidence, it is worth making the point that the facts show the vast majority of SMEs face no financing problems, and many do not even require bank finance. The latest SME Finance Monitor-the largest survey of small businesses’ funding intentions-showed that at the end of last year only nine per cent of SMEs had applied for a loan or overdraft in the preceding 12 months. The vast majority of them were successful in getting some form of borrowing (79 per cent of those who applied for overdrafts, 65 per cent for loans). So the banks’ focus has quite properly been on those businesses which have failed to get the finance they needed and those which have not applied for finance but ought to be doing so.
That is why the UK’s main high street banks jointly committed to a range of initiatives to restore business confidence, and-uniquely-why their work to help SMEs in particular was recognised in this year’s Budget Red Book (paragraph 1.233):
“In addition, the Government…welcomes commitments by the banks to: publish an independent review of the lending appeals process; improve training for relationship managers; review the effect of credit ratings on start-ups and businesses switching banks; establish a system for referring unsuccessful loan applicants to Community Development Finance Institutions; and extend their national mentoring scheme. These measures build on the work of the British Bankers’ Association’s Better Business Taskforce.”
There will always be businesses that are too risky: banks cannot afford to lend their savers’ money to these. Most often, the reason why a loan or an overdraft is turned down is not because the bank will not lend but because the business should not be borrowing.
Saying no to borrowing-or no to more borrowing-is not necessarily wrong. And there may be businesses which would benefit from equity investment rather than simply more borrowing from their bank. One of the Better Business Finance commitments is to explain to businesses that there are other sources of finance available, and to encourage them to think about what their business needs for the long term. This is where opportunities arise for private equity firms, providing more appropriate alternatives for businesses in need of investment to help them to grow.
The Chancellor’s Budget initiatives will ultimately be judged according to their success in restoring stability and securing economic recovery. The banks are committed to working to meet these same goals.