Banks are failing small businesses

According to a survey carried out by the UK200Group, almost half of small businesses say that their banks have imposed unfair changes to overdrafts or loans, with 27 per cent claiming that these changes had taken place without notice. Under a quarter were consulted over changes to lending agreements.

Over 25 per cent of entrepreneurs surveyed have found that offers of lending have been withdrawn or "varied" during the past six months. An astonishing 13.5 per cent have had their facilities removed altogether.

Kevin Dickens, UK200Group president, said: “With the spotlight focused very firmly on the banking sector at the moment, our survey is another indicator that banks need to tidy up their act and do a great deal better for their clients.”

The findings of the survey fly in the face of results released by the government. It launched a ‘mystery shopper’ scheme earlier this year, testing lenders on staff awareness, understanding and promotion of the Enterprise Finance Guarantee (EFG) scheme. According to the government, three-quarters of business advisers have a detailed awareness and understanding of the EFG’s features and its role.

Of couse, "awareness" has no bearing on whether these lenders actually cough up the money. Phil Orford, chief executive of the FPB, remains concerned. “Despite some improvement in lending as a result of the government’s intervention, there remain inconsistencies with the communication and delivery of lending schemes,” he says. “Research shows that many struggling yet viable firms face an uphill battle to access the credit they need, are being subjected to steep increases in lending costs. The central problem appears to be exactly how the banks define viability.”

Further evidence from the FPB’s recent Economic Downturn Panel survey, carried out between 4 and 11 March 2009, shows a marked downturn in SME confidence in their banks. Not a single respondent believed that their bank support had improved: 50 per cent said it was getting worse.

The government has not escaped criticism either, with over half of business-owners saying that, despite the EFG and other liquidity measures, its support for their businesses has not improved.

Steven Harkin owns Saxon Oil, a small oil distributor based in Coventry. He uses his bank’s factoring services but was told recently it would stop paying his bills because he was £5.07 overdrawn.

“The banks have become totally inflexible and are now playing to the letter of the law," he says."You virtually can’t operate unless you dedicate all your time to credit management, they won’t make a single penny allowance,” said Mr Harkin. “Previously we were able to call the bank manager to let them know when a payment was coming through. The situation is ridiculous.”

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