“There is a guarantee that lending will increase, if viable businesses come forward – but you can’t ask banks to lend to non-viable firms. Viable is not a debatable point – either a business is sound, or it isn’t.”
That is the view of Angela Knight, chief executive officer of the British Bankers’ Association (BBA), who spoke to Startups this week. After all the recent banker-bashing, we asked her to give a view from the opposing camp.
And few banking experts can give a more informed view than Angela. A former Conservative MP, she served as economic secretary to the treasury for two years in the mid-nineties, and is one of Britain’s most respected finance authorities.
Typically, her views were eloquent and to-the-point. She happily admitted to “a gulf of understanding” between Britain’s banks and small companies, but added that “knowledge is lacking on both sides.
“Many decisions on lending are done fairly remotely… which can mean the bank is too remote from the business. On the other hand, businesses don’t necessarily provide the information the banks need to make a judgement.”
She also rubbished the notion that banks have a vested interest in refusing credit:
“Banks make money out of lending, they don’t make money out of not lending, so there’s no reason for them to turn down viable businesses.
“There have been mistakes on all sides, we know that. Money could have been lent but, according to the judgement of the time, wasn’t. But we’re trying to avoid this happening in future.”
With this in mind, Angela has been instrumental in the creation of the Business Finance Taskforce (BFT) – an elite group comprising senior representatives from HSBC, Lloyds, Santander and Standard Chartered.
Cynics may see the BFT as merely a talking shop, without the power to repair the deep schism between banks and businesses. But Angela disagreed:
“We’ve established a lending code, setting out the finer details about banks handling applications and dealing with small business, and an appeals mechanism is being finalised for launch at the beginning of April. The appeals mechanism can reconsider a lending application if it has been turned down.
“We’re also developing a network of mentors, who will be made available free of charge. We’ve been working closely with business groups on the mentor process, and any business turning over up to £25m will be considered.”
No lending problem
Critics of Project Merlin, the agreement between the government and the banks which will see £76bn made available to small firms this year, believe it contains too few targets and sanctions. They argue it is too easy for banks to wriggle off the hook, and exploit loopholes to get out of their lending commitments.
Angela admitted that “we don’t have lending targets” for small business, but added:
“We have made available the capital, and the resources, to lend up to a certain amount of money - even though that amount is likely to massively exceed demand. The bank doesn’t have control over demand, but what you can do is say ‘we’re really open to business’ – some banks have even put up advertisements to this effect.
“The level of finance being made available to [small to medium-sized firms] is 15% above the level of 2010, so the money is there.”
Angela said it would be unfair to impose sanctions on banks which fail to reach a set lending figure.
“You wouldn’t put a sanction on a pie shop if it doesn’t sell a certain number of pies, so why would you do that for a bank?”
Ultimately, she believed small firms need to spend more time studying what the banks are really saying, and reading the fine print:
“We need to get away from using simplistic language – one has to look at what is said, and what the detail is, rather than making assumptions upon a truncated version of a statement. That’s what we’re urging all small businesses to do.”
Angela also offered tips on how a small firm should approach bank managers to secure finance:
“First, you need to have your business plan in place… you need to know your market, your costs and your order book, and you need to be finance-ready. “
If you’re just starting out, or yet to launch your business, Angela said it’s crucial that “your costing’s right, your likely sales are right, you understanding of the market is right. You need to be realistic about what premises you need, and how long it’ll take you to set the business up.”
If your business is already well-established, “you should be prepared to show accounts. How was last month? How was last quarter? What does next quarter look like? These are all important questions.”
When asked to name bankers’ pet hates, Angela cited “not having answers to simple questions, like what is the demand for your product and how much will it cost. People might come in with a good idea, and say they’re sure of something without having the details to back it up.
“A good idea is a good idea, but it has to have facts behind it.”