One-man bands 'need banks to change'

The banking culture towards the smallest businesses must be looked at again if the record numbers of people ‘going it alone’ are to become successful traders, says the Association of Independent Professionals and the Self-Employed (IPSE), formerly PCG.

Echoing growing disquiet about lending to firms, the trade body for self-employed freelancers said a bank loan for one of its members could determine their success or failure.

“If we want these individuals to become the successful businesses of tomorrow, the banking culture must change,” said IPSE’s chief executive Chris Bryce.

“For many self-employed people, a small loan will allow them to move their home business into a more professional workspace, or to invest in a marketing campaign to find more clients.”

Mr Bryce was responding to a survey that found more than a third of small traders seeking business loans were both turned down by banks and then unable to find the needed funds from elsewhere.

And one in nine of the traders say that due to the reluctance of the banks to lend, access to finance will be a ‘major obstacle’ to achieving their growth plans for the next year, found the survey for the Forum of Private Business.

A significant chunk of firms are therefore resorting to use their own profits to fund their growth plans - a contingency option “which may impact on the pace of recovery,” warned the FPB’s Phil Orford.

Since his comments, and Mr Bryce's, the Bank of England has released its latest figures for Funding for Lending. They show that lending via the scheme to SMEs fell between April and June. It also fell in the previous quarter.

“Lending to businesses through the scheme was still negative in the last quarter,” reflected Paul Aitken of personal asset lender Borro. “Even if a bank were to grant a loan, these businesses would still have to wait a considerable period before the cash enters their accounts.”

But a slow source of finance is better than no source of finance, according to Mr Orford. “These figures would surely be worse still if Funding for Lending was not in place,” he said.

“Without more lending to small businesses their growth and the country’s growth will remain slow. Politicians of all parties need to have a hard look at the lending sector ahead of their conferences in September and October.”

Despite the FfL data disappointing the enterprise community, separate figures released by the BoE show that net lending to companies by banks and building societies rose in the second quarter.

The total sum lent by banks and building societies, including those not on the FfL scheme, to non-financial firms also notched up, representing the first growth since 2009.

Although the Federation of Small Businesses reportedly says the April-June period also saw its members’ loan application success rate increase, another business group hinted that the loans themselves were just the tip of the iceberg.

“The Business Banking Insight (BBI) confirms that many SMEs are unhappy with the level of service they receive from their bank,” said the British Chambers of Commerce.

“These [FfL] figures reiterate that much more needs to be done to fill major gap in the provision of SME finance in the UK, including increasing the role of equity and bond markets and delivering a Business Bank with a greater capital base than under current plans and the ability to lend directly to businesses.”

Similar wording is coming from IPSE, which says it is the banking sector’s “culture” around lending to the owners of small and medium-sized firms that needs to be "re-examined."

“Small businesses are driving the economy forward and banks urgently need to recognise their value and give them the support they need to flourish,” said Mr Bryce.

He added: “The way successful businesses get off the ground has fundamentally changed and banks need to modernise their approach to lending. Banks need to start looking at micro-businesses in terms of the opportunities they offer, not the risks they present.”

Sep 1, 2014
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