Why have we have stopped talking about the failure of the banks to support small and medium-sized enterprises? The leading high-street banks may talk a good game about their backing for entrepreneurs, but the hard data suggests they are less impressive when it comes to putting their money where their mouths are.
Look, for example, at the latest quarterly report from Professor Russel Griggs, the independent external reviewer appointed by the Government to hear appeals from small businesses that think they have been wrongly turned down for finance by their banks. Professor Griggs says 858 small businesses appealed to him during the three months to the end of June this year, down marginally on last year’s total, but up on 2013. Some 23 per cent of these were upheld: in other words, almost one in four of the businesses turned down for finance should have received the funding.
Then there is the data from the Financial Ombudsman, which takes complaints from the smallest commercial organisations; it says that almost 750 complaints were made to the service by small businesses over the last year. In most cases, these were about bank loans and overdrafts – particularly the sudden withdrawal of the latter.
This isn’t an issue only of finance. A study to be published this week by technology company Advanced Payment Solutions shows that the typical small business has to wait 16 days when trying to open a business bank account. The survey suggests the average business is paying £468 a year for its account and that a third believe their bank “actively seeks ways to sneak in fines and fees that they do not understand”.
Nor are small businesses getting much help from policymakers in dealing with the banking sector. When banker-bashing was seen as easy source of political capital, ministers were falling over themselves to help, promising a scheme that would force the banks to refer unsuccessful applicants for funding to sources of alternative finance. More than a year after the Government confirmed it would introduce such a scheme, estimated to generate as much as £2bn a year in extra finance for small businesses, there is little sign of its implementation.
This is depressing stuff and the situation may deteriorate as new banking regulation comes into force. The Federation of Small Businesses has spent much of the summer trying to persuade the Treasury to take an interest in the fact that the Basel Committee on Banking Supervision is pushing new standards that will require banks to hold more capital against loans to small businesses. The Government appears unmoved.
It’s no longer good enough to argue that small businesses don’t want funding. As the economic outlook has improved, small and medium-sized enterprises have become increasingly willing to take on debt in order to capitalise on emerging opportunities. The most recent Credit Conditions Survey from the Bank of England reported that “demand for lending from small businesses increased significantly during the second quarter”. Supply is not keeping pace with that trend.
There is some good news. Several challenger banks do now seem to be giving the big names a run for their money. The newly listed Aldermore Bank, for example, said last week that it had made a £44m profit during the first half of 2015, well ahead of expectations, thanks to a surge in new business from its small business customers. Aldermore’s leading rivals, including Virgin Money and Shawbrook, have issued similarly upbeat reports.
Nevertheless, our biggest banks retain a stranglehold on the small business sector that will take many years to unwind. In the meantime, if they are unable or unwilling to improve the proposition offered to growing businesses, many good companies will fail to achieve their potential. That will be to the detriment of the economy as a whole.
It has become less fashionable of late to criticise the banking sector for its failure to engage with small businesses – but that doesn’t mean this issue has gone away.
Busy July for junior market but 2015 still disappointing
Alternative Investment Market-listed companies raised £520m in secondary funding during July, the highest monthly figure for almost five years. The broker Allenby Capital said July had been the busiest month for secondary fundraising since March 2011.
Despite this, 2015 has so far been a slower year for Aim than 2014. In the first seven months, new companies listing on Aim and existing constituents raising more money picked up a total of £2.8bn from investors, down by 33 per cent on last year. And while 37 companies have joined the market this year, 74 have left – Aim now has 1,067 constituents, down from 1,104 at end of 2014.
Nevertheless, Allenby Capital pointed to rising trading volumes on the exchange, with July seeing an average of more than 20,000 transactions a day.
Serious risks not appreciated by companies, says insurer
Small businesses are under-insured, a study by insurer Royal London claims today. It says too many businesses don’t appreciate how different types of insurance could protect their organisations. For example, while 77 per cent of small businesses conceded that if a vital employee was unable to work for six months due to ill-health there would be a serious impact on the business, only 40 per cent believed “key person” cover was important. Similarly only 44 per cent of the companies in the survey said they insured their stock and equipment.
Small Business Person of the Week: Steven Macatonia, Co-founder, Union Hand-Roasted Coffee
I launched Union in 2001 with my business partner Jeremy Torz. We’d previously been involved with the Seattle Coffee Company, and when that was sold in 2001, we went travelling in Central America; at the time, coffee prices were at an all-time low and what we saw convinced us that there had to be a better way.
We wanted to offer high-quality coffee to customers, but the commoditised nature of the coffee market doesn’t support that because buyers are only interested in price and they jump from supplier to supplier; we wanted to build long-term relationships with coffee producers, who would then have an incentive to invest in their businesses.
When you give people the opportunity to taste superior-quality coffee, they understand what it’s all about, but that means getting it to customers and, for example, working with baristas to make sure they know how to make good-quality coffee.
Our sales are up by nearly 150 per cent over the past five years. Britain seems to have fallen in love with good-quality coffee. Equally, it’s inspiring to see the effect we can have on farmers and their local communities – many of whom were abandoning coffee production when we got started. We now work with producers in 12 different countries in Central America, Africa and Indonesia.
It took us some time to get to this stage, but you have to grit your teeth and get on with it. The rewards we get from building those long-term relationships are worth it.Reuse content