The Big Question – Are Banks Lending Again?

According to Simon Featherstone, Managing Director, Lloyds TSB Commercial Finance “Whilst there was a general perception about a tightening of credit markets, gross new lending to SMEs by Lloyds TSB Commercial Finance actually grew in 2009 – up 9% on the previous year.”

Whilst Lloyds maintains it has slightly increased the amount of its commercial lending levels, it does acknowledge that the credit markets as a whole are still largely down on the previous year. When you consider that 2008 was an exceptionally poor year for credit markets, it does put into context how little a 9% increase is, in real terms.

He went on to say of 2009, “By talking down the availability of finance, many entrepreneurs were put off even applying for loans. It became a self-fulfilling prophecy,” explains Simon Featherstone, managing director of Lloyds TSB Commercial Finance. He comments that SME’s, doubtful of success with the banks, simply didn’t bother to apply for finance?

This will sound too much along the lines of ‘if a tree falls but no one sees it…’ for most peoples liking. Surely, the level of applications is distinctly different to the actual levels of money earmarked by the banks for commercial lending purposes? Perhaps, it would of held more weight if he had said something like “we earmarked/expected/were prepared to lend £x billion pounds for commercial lending in 2009 but the level of applications made was below this”? Indicating that the market had not fully taken advantage of the monies it expected to lend.

Granted, as in the housing market, the level of applications is a partial indicator of underlying demand, but Featherstone’s tone suggests the banks in general offered less commercial finance to SME’s in response to a perceived falling level of demand? And not because they were propping up their own balance sheets, or that they themselves were not lending to each other, never mind SME’s?

Despite all the talk of tightening credit markets, the reality was that the landscape for accessing commercial finance had not significantly changed in the wake of the downturn. Lending figures for 2009 from the British Bankers’ Association (BBA) showed that “overall the amount of money being lent by banks to the small business sector had certainly reduced compared with 2008 figures”

Nevertheless, of those SME’s that did see the ‘economic downturn tree’ fall in the forest of ‘bank bailouts’, and whom braved an application, something the Lloyds paper cannot disguise is the resultant figures.

It reads, “Interestingly those businesses that had tried to obtain loans or overdrafts were noticeably less successful in obtaining finance than ones that had opted for alternative means of raising cash. Just 59% of businesses that had tried to obtain a loan from their bank were successful and 58% of those seeking overdrafts….”

Arguably, the most common reason cited for an unsuccessful application was a lack of sufficient security. During 2009, reports from SME’s in the press were coming thick and fast, in which the high street banks were seeking ‘excessive and unprecedented levels of security’ for traditional commercial borrowing facilities.

With capital assets such as property falling in value at the same time as the banks widening the goal posts and wanting more, is it any wonder that the credit market dried up?The poor application success rate and excessive security demands compares starkly with the 90% success rate for those businesses applying for invoice financing during the same period.

Featherstone suggests that the risk posed to general economic recovery from SME cash flow problems as a direct result of growth, coupled with unfavourable supplier invoice terms and late customer payments has considerably risen and continues to dampen confidence. It seems likely then, that as the banks continue to shore up their balance sheets and depress traditional borrowing formats, invoice financing maybe the answer to the lending question.

Whilst the banks have made efforts to exploit the situation and promote their own invoice finance products more heavily, as an independent invoice finance broker, we have certainly seen a dramatic upturn as SME’s are put off by the high street banks costs.

Another major factor pushing SME’s towards independent factoring brokers such as ourselves is that many feel let down by the banks in that they were ignored for nearly two years and their move into invoice finance is motivated more out of profit, then helping their actual customers.

Factoring Finance – With over 30 years experience and an extensive UK broker network we have helped businesses from many commercial sectors get advances on their outstanding invoices through Invoice Factoring or Invoice Discounting,

Factoring Finance Ltd – bringing you one of the UK’s largest and Independant Factoring Broker Networks

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