Small Talk: RBS let companies down on lending but so did most banks

The biggest lie is that lending at the bank disappointed as small firms didn’t want to borrow

Thank heavens small businesses weren’t depending on Royal Bank of Scotland to provide the spark during the dark days of recession.

Two years ago, Stephen Hester, then the bank’s chief executive, launched a charm offensive to counter suggestions that the bank, 81 per cent owned by the taxpayer, was hindering small businesses’ ability to grow.

“At RBS, we know we have a responsibility to back the small businesses in our communities that want to play their part in the UK’s recovery,” he declared in an opinion column published in the Daily Telegraph. “A circuit-breaker is needed to restore confidence for UK small businesses – that is what we are hoping to provide.”

All of which rings rather hollow, given the report published on Friday by Sir Andrew Large, the former Bank of England Deputy Governor, into RBS’s small business lending practices. Pretty much the only positive thing one can say about the report is that it is to RBS’s credit it commissioned this independent scrutiny in the first place.

The biggest lie Sir Andrew’s report nails is that small business lending at the bank has disappointed because small businesses haven’t wanted to borrow. Far from it, Sir Andrew concludes. The main issue is that the bank lends to just one in four small businesses that make an enquiry about borrowing. These rejection figures don’t show up in official statistics because RBS “screens out” enquiries before the application process is even reached.

The rest of the report is equally damning. Customers perceive RBS to be unwilling to lend, Sir Andrew says. Customer-facing staff and credit officers are too risk averse. It takes too long to apply for credit and internal restructuring has fragmented responsibility for lending to small businesses.

Now, one might have hoped, given the public ownership of RBS, that the bank would be a standard bearer for a public policy priority that has had cross-party support, to provide greater support for small businesses trying to grow. Not a bit of it. In many areas, Sir Andrew says, RBS has actually performed worse than its rivals.

What we shouldn’t do, however, is condemn RBS as an isolated example of poor practice, for many of the complaints Sir Andrew confirms are justified at this bank would be found to be just as valid were he to turn his attention to any major lenders. The fear that small businesses are being screened out before they even get a chance to apply for funding is particularly important, for this is an accusation commonly levelled at all the banks. It’s a cynical way to operate, by quietly letting small businesses know there’s no point in applying for credit, banks are able to turn them away without the rejection turning up in their lending statistics.

What is to be done about these issues? Well, a good start might be to ask Sir Andrew to turn the same light on RBS’s rivals. Having published his report, the bank has had to set out a programme of action for putting right its failings. Its rivals haven’t admitted to their own problems yet. They’re still holding the “small businesses don’t want to borrow” line.

One other thought. We have repeatedly been told the suggestion that there are hundreds of thousands of zombie companies trapped by the scale of their debt is a myth. So how does that square with RBS’s decision to move £38bn of toxic loans into a ring-fenced “bad bank”? Some of that total must be accounted for by SME debt.

All in all, RBS’s update to the market makes thoroughly depressing reading, partly because the bank is such an important player in the SME sector, but also because the experiences of its small business customers are commonplace across all the big banks.

JQW to bring services to global market

Few investors will have heard of JQW, a Chinese business-to-business e-commerce operator, which will today announce its flotation on the Alternative Investment Market (Aim). But they will be familiar with its rival, Alibaba, to which JQW is number two in the market.

The comparison is important because while Alibaba is already a global juggernaut, this is a marketplace with huge potential for further growth. JQW offers Chinese SMEs a range of services, including website design and marketing services, as well as a marketplace through which they can sell their products online. The platform has 10 million registered users.

The company is raising money on Aim in order to fund marketing activities to compete in globally. Sales growth in recent years has been dramatic – revenues rose 97 per cent in 2012.

New technology may light fire under late-payer firms

Given the difficulties so many small businesses have with late payments – the average British SME gets paid 41 days late – it is gratifying to see one fighting back with an innovation that might help everyone.

Online business Satago, which launched last week, uses technology that enables it collect payments data from the accounting systems of small businesses and freelancers that give it permission to do so. Based on this anonymised data, Satago can then produce reports on how well – or not – large companies are behaving in terms of paying their bills on time. Small businesses considering working for such companies can then set their terms – or even choose to avoid them.

It’s a great idea that could turn the conventional power structure on its head. Satago founder Stephen Renwick says the idea was borne of his own experience.

“Having suffered the challenge of late payment previously as a small business operator, I know first-hand how crippling this problem can be,” Mr Renwick says. “As our database grows, our efforts will put healthy peer pressure on big business to play much fairer with their suppliers.”

Small  businessman of the week: David Courtier-Dutton, Founder, SoundOut Retail

We launched Slicethepie, the world’s first crowd-financing platform for independent music artists, in 2007, but we very quickly changed tack. We could see a business in crowd reviewing – we’re effectively curators of digital feedback.

We have 300,000 people who review new music from the big record labels and from independent artists prior to release. Collectively, they provide very accurate and reliable feedback on which tracks will perform well, with which demographic, in which market and so on. We’ve helped Taylor Swift and One Direction decide which album tracks to release as singles, for example.

We started out by selling that information to the radio sector, but we also now work with all the major record labels on a monthly subscription basis; plus we can help independent artists too. Our reviewers get paid for offering their services – how much depends on the quality.

With SoundOut Retail, we’re taking the same concept into online clothing retail.The business is growing really fast; we have 10 full-time staff and sales are up 300 per cent year-on-year. We’re on course for sales of £2m this year.

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