23 Mar 2012

Talking point: Are banks doing enough to help small businesses?

Two experts debate whether banks are lending enough to small businesses. Tell us which side you agree with

Yes: Stephen Pegge, director of SME markets, Lloyds Banking Group

Is it supply or is it demand? That has been the chicken and egg question for bank lending to SMEs for over two years. The chief executives of six major banks including Lloyds Banking Group have established the Business Finance Taskforce to improve customer relationships, access to broader sources of finance and understanding and dialogue across the sector. So an early response is beginning to answer that question, to do something about the underlying issues, and is beginning to bear fruit.

I’ve been leading several initiatives including the promotion of mentoring to enhance the confidence, support and finance readiness of new and growing businesses. The first requirement was to ensure mentoring organisations and networks are visible, and easier to select and access by enterprises and potential mentors. The main channel is mentorsme.co.uk. It has had over 250,000 hits.

The banks also pledged to identify, train and make available 1,000 mentors with suitable backgrounds for volunteer mentoring organisations across the UK and 500 are already in place. The 200 mentors from Lloyds already out there are really positive about the experience.

Another important initiative is the new industry appeals process, giving commercial customers the right to have a lending decision reviewed within the bank. That process is independently overseen by external assessors led by Professor Russel Griggs, previously chair of the CBI’s SME Council. This should ensure everyone can have confidence in getting a fair hearing and address the concern that many are discouraged from applying for finance due to the perception that banks won’t lend.

At Lloyds we’ve introduced our own Appeals Pledge, as part of our SME Charter, which goes beyond industry-agreed guidelines. We have pledged to resolve 90% of customer appeals within 15 working days, and to make a goodwill payment of £150 wherever a decision is overturned in a customer’s favour. This could be why in 2011, we’ve grown SME lending in a declining market.

No: John Walker, national chairman, Federation of Small Businesses

Small firms have really struggled to access finance and we know that for a business looking to grow, getting swift access to affordable finance is key. Latest Federation of Small Businesses (FSB) research shows that two in five businesses that applied for finance in the three months to February – just as Project Merlin was coming to an end – were refused.

However, we have long said that targets were not the right way to get finance to small firms, and the fact that the banks missed their small business lending target shows that. We also know that some businesses are looking to pay down debt. But the figures speak for themselves: it’s not getting through and it isn’t affordable according to 60% of our members.

In a recent paper, Alt+ Finance: small firms and access to finance, the FSB suggested looking at non- bank alternatives so we can move away from a one- size-fits-all system. We want the government to look at ways of promoting these alternative sources of finance, so that small firms have more options open to them than just the high-street banks. Peer-to- peer lending, asset backed finance and community development finance institutions are just a few of the non-bank examples cited in the paper.

In the longer term, the FSB believes government should look at ways of creating the sort of local banking infrastructure that is a feature of the German economy. This would open up local lending facilities to smaller companies.

We also welcomed comments from business secretary Vince Cable that government should start using its influence with these organisations to make sure finance gets to the businesses that need it.

There is no single silver bullet that is going to fix the situation, but if we are going to grow the economy to strengthen the recovery then the small business sector needs to be able to do just that. If that means the government intervening to promote non-bank sources of finance, it should do so in a targeted way that promotes innovation and competition in the sector.