Most businessmen will tell you that banks are quite happy to lend you an umbrella when the sun is shining, but they take it away at the first sight of rain. Far from increasing their lending to small businesses, banks are at this very minute taking back their umbrellas.
The economy may have grown by 0.8% in the last quarter, much more than was expected, but bankers sniff rain. A huge rise in unemployment looms, VAT is going up to 20% in January, the housing market is running out of steam and consumer confidence is starting to nosedive. Let’s have your umbrellas please!
David Cameron said yesterday that he didn’t hold with banks that withheld cash from stable firms. Vince Cable went on to say that “maintaining a flow of credit to good creditworthy companies will remain central to my agenda”. This all sounds good stuff, but notice the words they use…‘stable’ and ‘good creditworthy companies’. They are not wrong to use this qualification, but two years ago the banks turned many stable, good, creditworthy companies into unstable, bad creditworthy companies overnight.
So what did they do? They withdrew or severely reduced their credit facilities, increased their charges and renegotiated outstanding loans at usurious rates. On top of this, these companies had to contend with a severe drop in sales and a tightening of their cash flow. The banks were the cause of the problem, and then went on to make their customers pay for their mistakes.
What is to say that the ‘stable and good creditworthy companies’ that have weathered the storm are not going to suffer the same treatment again? It doesn’t look good. The record shows that banks continue to be less than helpful towards small businesses. Many have survived despite the behaviour of their bank, but their ability to do so again if they are not supported through the coming tough times, is questionable.
Politicians may scream and yell as much as they like about banks not lending to small businesses, but they are failing to address the behaviour of the banks at local level. This is where the real damage has, and is being done. They need to take a long hard look at the terms banks have imposed and at the terms on which they are prepared to lend.
A banking ombudsman for small businesses might be a good idea, although many small businesses may feel intimidated by the thought of the retribution that would exacted upon them should they dare to complain.
The banks have defended their failure to improve their lending to small businesses by saying that small businesses don’t want to borrow. These are weasel words. Many small, businesses are still labouring under extremely tough historical lending terms. They have experienced first-hand how banks behave when times get tough and they are reluctant to get involved with their bank any more than they have to.
The bottom line is that our current banks are really not bovvered about small businesses. They are a time consuming bore and they don’t make much money – at least not compared to the casino boys in investment banking. It’s time that retail banking was split from investment banking. New banks need to be created: we need more competition between banks. We must have banks that cater specifically for the needs of business, small and large – preferably with state involvement in order to ensure that businesses are nurtured and supported in good times and in bad. Germany, whose economy is set to grow by more than 3% this year, has always had a policy of positively advantaging business. We need to do the same. We need to start sorting out the banks – now!