As the banking industry waits with bated breath for the Independent Commission on Banking, the British Banking Association has claimed that banks are approving the vast majority of SME lending applications. This contradicts the calls from the SME sector for more lending. Where’s the truth?
Well, to use the hoary old cliché, nothing is black and white. The banking association’s claim that the vast majority of small business credit applications receive approval is put in context when it says further on in its statement that anxiety about the economy is deterring applications for business finance.
If we look back to one of the main reasons why small businesses aren’t approaching banks as they may have done in the past and are increasingly opting for alternative business lending, such as invoice finance and factoring, we can see a truer picture of SME lending. A lack of confidence in banks is putting small businesses off approaching the traditional high street business lenders, such as the Royal Bank of Scotland. Hence, application failure rates are obviously low.
The banking association is trying to paint a brighter picture of the state of big bank SME lending and the time of such a bold statement is interesting. Sir John Vickers’ independent commission on banking is due next week. While the division of retail and investment banking is the main attraction, it does present the government with an opportunity to revise its SME finance strategy, which, if we look to Business Secretary Vince Cable for direction, could include the application of greater pressure on banks to improve small business banking terms.
Regardless, it seems clear that SME finance services such as invoice discounting and leasing and asset finance have an important part to play in SME financial planning in the months and years to come.
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