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Access to finance for small businesses has never been commented on so regularly in the media - yet it appears that confusion still reigns. “The banks are not lending at required levels” cry commentators, small businesses and the Government. The banks contradict them. So, what’s really going on?
Bank of England reports and evidence from the small business sector confirm that loan delivery is lower than before the credit crunch. The banks cite lower demand as the reason – and all the indications are that they are right, certainly at the lower levels - for loans of up to £250,000. In my experience the banks have had a reduced appetite for smaller business loans for a number of years. It is a high risk sector, which offers little profit, so the recession has just accelerated a trend.”
A recent IoD report highlighted that many small businesses have turned to credit cards as an alternative to bank finance. This is an issue I raised concern over well before the credit crunch. Tempting as they may seem for business borrowers, who can get money without any questions asked, credit cards are rarely the best option. Businesses lose out by paying a premium price for their money and are denied the opportunity to gain business support and financial advice.
The Birmingham Post recently reported that some businesses are even turning to Pawnbrokers. Their interest rates equal 56% to100% and upwards APR! But why do that there are alternatives available, designed to support enterprise, offering much lower rates?
Are their propositions viable? Perhaps Lord Sugar is right when he claims that businesses are ill prepared and unrealistic when it comes to accessing finance - certainly we have seen some such cases at ART. In the West Midlands steps have been taken over a number of years to ensure that any business with a viable proposition can access the finance it needs. See www.fairfinance.net or www.westmidlandsfinance.com.
It will be interesting to see what happens as a result of the introduction of the BIS task force. It may emerge that both businesses and banks need to change their approach to finance for enterprise to flourish in the long term.