Partner Article

The biggest barriers to bank lending

It’s finance week on Bdaily and we are looking at the landscape of funding and investment, from both sides of the table. David Wilson, Director of financial advisory firm, NE Money, explains how bank lending works and what stops an application for finance from going through.

As a former Senior Business Manager with a high street bank and now the owner of a financialadvice firm, one of the main questions I get asked by clients is ‘how do the banks work’? Every day I hear the comments about ‘my bank manager doesn’t understand my business’, ‘all they want to do is sell to me’ and ‘it’s not like it was when your bank manager knew you’!

Banking and the world of finance is significantly different from the banking which took place inthe past decades. Technology advancements, the rise of the entrepreneur and the spectrum of sophisticated finance vehicles available mean that whilst we might dream of banking ‘like the old days’ it’s simply not feasible.

One of the main issues that our clients tell us they have with their banks is the fact that local business managers have no discretionary powers anymore to make lending decisions, with the final underwriting decisions coming out of teams in head offices across the country; not great when we’re talking from the North East.

The lending process for most banks operates on the basis of a business manager meeting the client, collating the information and putting together the application. Very few institutions have managers who have the discretion to agree a lending proposal – although the argument that the manager has the ability to not proceed with an application if they don’t feel its strong enough, does give them some authority. The manager will spend a great deal of time submitting an application to ‘credit’ and therefore they will have to feel comfortable that the application has a strong chance of approvalotherwise their time spent will all be in vain.

There tends to be two main reasons for application issues; information and credit rating. Your credit rating can be the difference between an early yes or no, so making sure your file is up to date is essential. An application for funding can quickly be declined if the manager feels the case isn’t strong enough to get passed the ‘computer says no’ scenario! They will have to invest a great deal of time to overturn the computer decision with an underwriter.

In a similar sense to your credit file getting you a quick ‘no’ decision, so too can sparse information.The belief that because a business has been with a bank for twenty years and that they can see what the business does doesn’t work. The more information that can be provided directly affects the chances of success. A lack of information will immediately make the manager’s job harder and give them more reasons to decline a very early stage – the more of their job you can do for them and the easier you can make their life the better chance you have. Unfortunately for many people in banking it is just a job and business owners can’t expect them to move heaven and earth forinformation provided on the back of a business card!

Without a doubt the two key aspects of an application for finance are credit reports and the information available to support the application, get these right and your chances of getting that finance to support or grow your business will be a lot easier.

For more related articles please visit- Bdaily meets crowdfunders; A day as the bank manager; Funding for lending- the story so far; Back to basics on credit reports and Financing a graduate startup.

This was posted in Bdaily's Members' News section by David Wilson .