Funding for Business: Two Sides of a Different Coin?
5th December, 2011
It is becoming a recurring theme of the ongoing economic struggle. Is there a problem with access to finance or are companies simply lacking the confidence to borrow?
The Chancellor’s latest announcement in his 2011 Autumn Statement of a 2-year, £40bn national loan guarantee scheme comes on top of the Enterprise Finance Guarantee Scheme and Project Merlin (by which the four major banks and Santander have committed to making £76bn available to smaller businesses in 2011, an increase of £10bn or 15% over the previous year).
Yet the Bank of England is particularly concerned that lending to smaller businesses is in decline and where it is taking place, the bar has been raised in terms of interest rates, personal guarantees, etc.
It is, of course, stating the obvious to say that the banks can only lend if companies want to borrow and it is unquestionably true that there is reduced appetite amongst organisations of all sizes. Concerns about the euro, weak consumer confidence and double dip recession are the obvious contributory factors. A further twist has emerged, in that it is suggested that some companies do not want to approach their bank for additional funds as raising their head above the parapet may lead to an unwelcome review of their existing banking facilities.
So what is to be done? The banks are losing the PR argument, but they cannot be held solely responsible if companies are not borrowing – and no one wants a return to irresponsible lending! If business confidence is low, it is not surprising that companies become risk averse, even if in the medium term a lack of investment in new capital assets and in exploiting new markets may put them at a competitive disadvantage.
There is no doubt that the banks are working harder on relationship management to re-build trust. They insist that lending criteria have not really changed that much, but companies do need to put forward rigorous and realistic business plans if they want to borrow. This is supported by the Bank of England, who reports that approval rates on loans are close to the norm, at 80-85%.
Aaron & Partners has no magic wand to resolve this funding conundrum (let alone the woes of the eurozone!) However, we might be able to help point companies in the right direction on the range of other options that are available, whether it be other forms of bank financing (e.g. invoice discounting and asset finance) or the myriad of funds and grants that are available (including the North West Fund).
There are no easy solutions but I suspect there are more options than most people imagine.
Andy Duxbury, CEO – Aaron & Partners
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