Bankers and SMEs

23 December 2010

This is no time to be running a small business that has ambitions to grow.

Recently, I have come across two examples of banks holding out on funds for businesses that needed the bank’s support to drive investment in manpower and stock. And these are family businesses with maturity, common sense and a cautious approach to borrowing. In both cases this failure to support the companies in question will mean that market opportunities that could have been exploited will have been lost to competitors, probably forever.

It would seem that despite the Government’s haranguing, the banks are paying little heed to customer needs while they spend their time repairing their own balance sheets. I really believe that this myopic approach will seriously damage the recovery of Britain’s economy, an economy reliant upon a buoyant and entrepreneurial SME sector.

One hope is that it might flush out alternative lenders: a good example that I was introduced to the other day by an IFA was the innovative use Self Invested Pension Plans (SIPPs). Money could be raised from a group of SIPP holders as a loan for commercial and residential property development schemes. These loans were likely to deliver circa 9% return for the SIPP lender and be backed by debentures on the bricks and mortar. On semi pre-let opportunities or in sectors where housing need is growing rapidly (care homes, assisted living etc) these could provide the liquidity that cash strapped developers and builders need.

I suspect we will see more of this sort of innovative lending over the next couple of years while interest rates remain unattractively low for investors and banks continue to forget what they are meant to do – lend money.