Firms in fear of bank backlash
One director said the Lloyds case could 'make it more difficult to build relationships with banks'
Sunday 10 September 1995
Derek Yarwood, at the Forum of Private Business, said his organisation was "very concerned" about the possible ramifications of the award of pounds 77,500 in damages last Monday.
First was the "old fear" that it would lead banks to cut back the advice they give small businesses or wrap it up "in so many legal technicalities" that it would lead to confusion or added expense for the clients. Second, there was the risk that - in adopting a safety-first policy - banks would severely restrict cash available for small businesses. "So many businesses rely on banks for expansion that a lot of plans could be jeopardised," Mr Yarwood said.
The banks are claiming that their procedures will not be affected by the case. John Spence, head of business banking at Lloyds, was reported to have said the bank was glad it could continue to offer "general guidance and advice" when it had feared that loans might be treated in the same way as products regulated under the Financial Services Act, where "best advice" rules apply. National Westminster, the biggest lender to the small business sector, agreed that it would continue to give "general advice". A spokeswoman said bankers would advise customers to obtain detailed assistance from solicitors, surveyors or whatever experts were most appropriate.
Like other banks, NatWest is seeking to improve managers' awareness of the problems of small businesses, and the spokeswoman reiterated the organisation's policy of basing lending on cash flows and other measures of financial viability.
But support for the view of the Forum of Private Business came in a letter to the Independent last Thursday from Charles Walmsley, a company director from Berkshire. He said he was worried that the Lloyds case would make it "more difficult for directors of small firms like myself to build and maintain a working relationship with the bank".
When he started his company three years ago, the bank provided a pro forma for cash projection and profit-and-loss before agreeing to open the business accounts. "At no time did I expect them to comment on the feasibility or otherwise of the venture. What I expected them to do was to ensure that I had worked out the numbers," Mr Walmsley said.
He said he had developed a "normal commercial relationship" with his bank in the past three years - and Mr Yarwood suggested this was still possible for other small businesses, provided they took the right approach. After all, he pointed out, banks were regarded by small firms as the second most valuable advisers after accountants.
"It comes back to risk assessment," he said. At the moment, banks tended to keep the criteria "pretty much to themselves", but if they involved firms much more closely in calculating the risk, they could improve relations.
In return, businesses would have to help by putting information before the banks. This in turn would have the advantage of making the owner-manager feel part of the process. "If the businessman is involved from day one, there's less chance of him claiming he was misled."
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