In Defence of the Banks (well, almost!)

So, here we are again, in the depths of a recession (technical definition notwithstanding) and, led by the media with the Great British public following on blindly behind, kicking the easiest target, the banks.

It cannot be denied that the global financial crisis of 2008 was largely a banking-led event, coupled with Government profligacy and Treasury-led mergers in the banking sector.  Looking at an alternative strategy, I do wonder how much a secret bail-out of Lehman Bros would have cost and whether such could have been achieved without the wholesale carnage visited upon the global economy as a consequence of what actually did happen.

Nevertheless, we are where we are.  The UK banks pledged to lend £76bn to UK business and missed that target by £1bn.  Frankly, I’m amazed the banking industry got that close but many companies will be glad that it did.

It was predictable that the media would focus on the £1bn not lent, trotting out the usual business owners whose borrowing requests had been declined and not once giving airtime to businesses which had received some of the £75bn actually committed by the banks.

The inability of a significant proportion of the UK’s SMEs to produce any kind of cogent business plan that actually makes the case for financing (as opposed to one geared to monitor the operation of the business) is staggering.  Ignoring their own responsibility for failure to raise funding, many simply revert to the worn out mantra “My bank doesn’t understand my business.”  So, let me pose a question to anyone who has ever uttered that sentence…  How many of you understand the business of banking?  Not many, for sure!

To add a degree of balance, it has to be said that the banks are their own worst enemy.  They have perfectly opaque credit processes, in some cases they front so-called Commercial Managers and even Senior Commercial Managers with little empathy and no power to lend whatsoever.  Where referral to higher authority is required, it can take an eternity to sanction anything.  With base rate at 0.5%, businesses are being charged 15%+ in numerous cases for credit so someone is doing very nicely out of the extra 14.5%…And that’s all before we get to the subject of security requirements!

To aid recovery, both bankers and their customers need to move towards each other.  Business needs to understand what banks expects to see in terms of a business plan and the banks need to sharpen up their sanctioning processes, perhaps taking an interest rather than just the interest.  The catalyst could well be the consulting industry which has many organisations now geared to helping the SME by complementing the services of the accountancy profession.  Narrative in a business plan is at least as important as pages of spreadsheets; equally, the numbers must reflect the narrative and vice-versa.  Importantly, plans need to be tailored to the institution to which they are to be submitted; one size certainly doesn’t fit all.

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