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British business and the banks ? where now?

One positive that has come out of the global financial crisis is that it has forced the banks to be more resilient and responsive to sudden future changes. You would expect this to be good news for SMEs, however we are wondering whether this is the current reality for UK businesses.

A recent SME survey commissioned by the Department for Business Innovation & Skills (BIS) highlighted that the top obstacles to growth for businesses are the economy, taxation, cash flow and obtaining finance. It is clear that these top issues are just as prominent with businesses as they were at the start of the recession despite the Government’s best efforts.

What issues?!

Taking one key issue faced by SMEs, obtaining finance, there are countless reports and evidence to show that this issue simply isn’t being tackled effectively and in fact is becoming harder. A research study commissioned by the Federation of Small Businesses (FSB) found that nearly 40% of businesses said their bank had rejected a request for a loan or an overdraft. A similar proportion had seen their existing overdraft facility either withdrawn or reduced. This coupled with 47% (BIS SME survey report) of businesses having difficulty when obtaining finance, shows that the key issue of obtaining finance is getting worse.

According to a UK Treasury select committee report commissioned in 2011, the top 4 banks had 80% of the SME liquidity market, which shows that there has been little shift in power as SMEs are still forced to look to the top banks as their main source of finance. A number of innovative new players such as Funding Store, iWoca and Platform Black have entered the SME finance market to provide some much-needed competition but the situation remains far from ideal.

Unfortunately for SMEs, the top banks are large and cumbersome organisations with a host of inherited, complex and outdated systems, meaning they are simple unable to change and adapt to businesses’ evolving needs. If the control of power doesn’t shift to more adaptable financial services organisations which have been designed without these issues, SMEs simply won’t get what they need to truly support them.

There is some good news!

“Challenger” organisations such as Metro Bank, Co-op Bank and CashFlows are now entering the business banking market intending to offer competition, but the addition of innovation and increased access to these services will take time to be felt by businesses.

Since the country was plunged into the seemingly never ending financial crisis back in 2008, the government have been trying to remedy the crisis by introducing various schemes such as the funding for lending scheme and the growth accelerator scheme and the small business bank, which aim to increase lending to businesses.

These schemes are good in theory, however alarmingly the Telegraph reported in March 2013 that Britain’s banks and building societies drew £13.8bn from the Funding for Lending scheme in its first five months of operation, but cut loans to households and businesses by almost £2bn. This shows that introducing these revolutionary schemes to support businesses is definitely a step in the right direction however more is needed to be done to ensure they are implemented correctly and ultimately help support businesses to relieve their issues and support their growth. Meanwhile against this backdrop, competition in business banking has actually fallen due to consolidation and mergers within the industry. Can less choice and competition ever be seen as being beneficial to British business?

We know that banks and other financial services authorities are being forced to become more resilient, however this often comes at the expense of supporting businesses through the very tangible challenging issues they are facing?

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