“New” banks? The lending market hasn’t changed

With the growing abandonment of small business by the traditional “Big Five” banks (Barclays, HSBC, Lloyds, RBS, Santander), commentators and companies are looking to other lenders, new entrants and historically smaller players in the SME market to ride to the rescue – so many Robin Hoods chipping away at the vice like grip of the evil sheriff. 

But I wonder if this characterisation isn’t just the wishful thinking of a cash-starved business peasantry faced with few other realistic lending options.

Are these so-called “new breed of banks” not just the same old dogs masquerading, albeit ones who managed to keep their pinstriped coats free from the toxic contamination of the past few years?

Before the banking crisis even started I had a very low opinion of bankers. So, I have no reason to now believe, just because some haven’t been caught up in the recent scandals, that the “new” bankers are any different. 

Remember, sticking “new” in front doesn’t always mean better – just ask the Labour party.

It’s not as if, at their heart, they’ll operate in a new way compared to traditional lenders. If they loan you money they are still looking to make a profit, they are not helping you out of the goodness of their hearts.

What I’m saying is that there will still be strings attached to any money they lend you.

There’s something business owners need to understand: these guys may pretend to be your friends, they may even come and visit you, see your business in action, even entertaining your aspirations for the future. After all, they want to be on board with companies that have potential to make them a good profit on their money. That of course, is the target of all good business models, but don’t be fooled: that’s as close as they’ll get to sharing the business acumen and knowledge of those at the coal face.

They have no emotional bond to your business, past its ability to turn a profit. Don’t be surprised to find a strange suit sitting behind your desk, and your office equipment down the auction house, should your growth plans hit a bump in the road.

Having taken the money from a bank, even when things are going fine your business will be less under your control than it was before the loan.

Not only do they want to know what you are going to do with the money before it is handed over, but they want to keep an eye on you to ensure you are playing to their rules.

Do not be fooled by offers of “free” business consultants. Know these creatures for what they are: spies!

At least if you issue shares in your company to investors, you have a number of small voices wanting to be heard. However, with a bank you will have one very loud one, with leverage that is control of your operating cash.

I’m not saying don’t ever take a bank’s money, but I’m warning you not to believe anything has changed in the business lending market just because some of the major players got burned.

Always ask yourself whether the positive effects of more cash in your business are worth the risks.

Charlie Mullins is the CEO and founder of Pimlico Plumbers.

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