SUMMER 11
It should be borne in mind that it takes two to tango – banks can only lend to those who desire to borrow
ACCESS TO FINANCE
That is not to say that there are undoubtedly many decent businesses which have had their cash plug pulled by pig-headed bankers or which have had perfectly sound investment proposals turned down. But the evidence seems to remain largely anecdotal. On the other hand, we report elsewhere in these pages that Santander is on track to meet its lending targets under the government’s Project Merlin, having, in the first quarter, lent £1.1bn of the £4bn it expects to lend to SMEs this year. It is only fair to add that it is the only major bank to be on track, but the rest are not massively off. It should also be borne in mind that it takes two to tango – banks can only lend to those who desire to borrow. Are we facing a problem of supply or of demand? In a recent interview, Stephen Welton, chief executive of the Business Growth Fund, said
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OVERVIEW
he had no problem in raising £2.5bn from the banks to invest in SMEs. Where his problems are arising is in finding the businesses which are seeking the investment. It seems that a large part of the problem is their unwillingness to give up a share of the business for equity finance, a problem which is echoed by our own interview in this issue with PWC’s Paul Mankin. The picture of a lack of demand for finance is also supported by a recent Lloyds TSB Commercial Business study in which 1,800 UK firms were questioned and in which only 19% said they were planning to increase their levels of investment and 21% were actually planning cuts. More than half reported low domestic demand and, facing that, it is hardly surprising if there is a lack of appetite to take on debt. At the beginning of the year, HSBC reported not only that its lending was up 22% by value on the year before but that a lot of existing debt was being repaid more quickly than it had expected. It also said that whereas pre-banking crisis utilisation of overdrafts by customers was running at 48%, post crisis that had fallen to 42%, again indicating a declining demand for credit. Given that the UK economy grew by only 0.2% last quarter, it would be remarkable if there was huge demand on the part of businesses to borrow money. Assuming no more shocks to the system from the Eurozone, the USA or even China, recovery is likely to be slow and unsure and, while it is under way, demand for finance is also likely to lag behind supply, and, as we report in this issue of BQ2, there is no shortage of financing methods and products. It may be a bitter thing to concede – but perhaps the bankers have a point. n
SPECIAL REPORT | SUMMER 11