Talking down the recovery won’t close the gap in SME lending perceptions

Anthony Browne
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IT’S AMAZING the difference just a few months can make. If we wind back to the spring, the news was dominated by economic doom, gloom, and concern about the UK entering an historic triple dip recession.

Now the pendulum seems to have swung the other way, with survey after survey reporting increasing business confidence and economic growth. After years of negative news about recession and cuts, this change in our economic fortunes is extremely welcome. Not least because, as Lord Young said in a recent report, “confidence, or rather the lack of it, is the origin of many a recession.”

The banking industry has repeatedly come up against this problem in recent years; the dire economic climate has discouraged businesses from wanting to take on loans. After all, why would you want to borrow more and expand your business if all you hear is talk of contraction and cuts? This lack of demand has created a vicious cycle where politicians have lambasted the banks for not lending more, which further undermined confidence and gave businesses the impression that it wasn’t worth even approaching their banks for a loan.

A survey out today highlights just how damaging this has been to the UK. The small to medium-sized enterprise (SME) finance monitor – the definitive survey of SME sentiment on finance – demonstrates that there is a “perception gap” on business borrowing. Businesses are much more pessimistic about their chances of getting money from their bank than they should be.

The survey shows that a third of those businesses potentially looking for finance won’t even consider asking their bank for a loan, because they assume they will be turned down. Just 38 per cent of SMEs that already have bank finance are confident that it will be renewed. In reality, 91 per cent of those renewal applications are approved. Similarly, about half of applications for new facilities get the green light, but only a quarter of SMEs were confident that they would be successful.

So how do we begin to close this gap? For our part, the banks are keen to get out the message that they are in the business of lending. We are looking at what we can do to raise awareness of all the programmes we have in place to help businesses. There are the thousands of bank staff across the country who have signed up to mentor SMEs, the cheaper cost of finance created by the Funding for Lending Scheme, and the independently-administered appeals process for businesses that have had a finance application turned down.

But it is important that we have a more rational national debate as well. In contrast to the oft-repeated claims that banks are refusing to lend to businesses, the survey out today shows that seven out of 10 SMEs applying for finance receive the funding they need, and 90 per cent of the time it is put in place within just two weeks of a business applying.

So as the economy starts to improve, hopefully the debate around business borrowing will too. Britain’s banks are open for business, and that business is lending money. If you need finance, now is a great time to go and see your bank.

Anthony Browne is chief executive of the British Bankers’ Association.