Banking lending decisions are improving – but business needs to play its part

Anthony Browne
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ARE you a small business, angry with your bank for turning you down for a loan? Don’t get mad, get appealing. All small firms have the right to appeal against their bank’s lending decisions as part of the Independent Appeals Process launched two years ago. If you request an appeal, a separate team within the bank will reassess the decision, overseen by an independent external reviewer. And the scheme is delivering: in four out of ten cases, the original decision is overturned, and the business gets funding after an improved dialogue with the bank.

As shown in the second annual report to the scheme, published today, there have been almost 5,500 appeals so far, which have put an extra £30m of funding into SMEs. The number of appeals has gone up – which is actually good news. Not because it shows more loans are being refused (they aren’t), but because there is more awareness among SMEs of their right to an appeal. We want SMEs to have confidence that they will get the right decision from their bank, and that there is a robust appeals process that will ensure that happens.

The process is independently overseen by professor Russel Griggs, a business owner himself and former chair of the Confederation of British Industry’s SME panel. He has been working with banks and companies over the last two years to see why SMEs are unsuccessful when they apply for finance, how they can be more successful – and why banks sometimes get the decision wrong.

His second annual report shows that the main reason applications are declined is credit rating. Either the company itself has a poor credit history, or the owner has a poor personal credit rating. But firms should understand that a poor credit score need not be the end of the road. Reviewers regularly came across situations where a customer applied for a loan but was turned down, yet with a little extra information provided by the customer during the appeal, the decision was overturned.

Better education and communication are key. There is a low level of awareness about credit checks, and banks and Credit Reference Agencies have joined forces to produce simple guidance explaining the role of ratings. Banks are encouraging managers to talk to customers early in the application process – but firms should also contact their banks to discuss their borrowing needs as early as possible. The good news is that, with better dialogue with their bank manager, businesses can often turn rejection into success.

The appeals process doesn’t just help individual businesses get the lending decisions they want. It also helps banks understand why they sometimes get things wrong, and so can improve the process. For example, banks are looking at how “automated” decline decisions for borderline applications can be manually reviewed before a final decision is reached. These are positive steps in the right direction that are helping the total number of rejections to fall, yet there is more that needs to be done. The aim has to be to get each decision right first time – and for small firms to have confidence that when they go to their bank, they will be treated fairly.

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