SMEs paying more for loans than a year ago

According to an article on the BBC website, many SMEs are struggling to meet the banks’ stringent and restrictive lending criteria and, to top it all off, are also paying more in fees and charges than a year ago.

The annual survey carried out by the National Association of Commercial Finance Brokers (NACFB) shows that lending is down sharply from nearly £20bn in the mid-2000′s, to just under £7bn today. And, with many financial institutions simply withdrawing from the commercial lending market entirely, their members are finding it very difficult to place business on behalf of clients.

The banks, of course, counter accusations that they’re making life difficult for businesses by pointing out that demand from small businesses for bank loans is weak.

Another survey carried out by the ICAEW’s (Institute of Chartered Accountants in England and Wales), also indicated that banks are being much more choosy about the loans they make and that credit facility fees have gone up as the banks take steps (belatedly, some would argue) to put their balance sheets in order. However, their findings also backed up the banks’ assertions about low demand, with many of the SMEs they spoke to preferring to pay back existing loans rather than take out new ones. They also found that the percentage of SMEs who feel access to capital is challenging fell from 30% at the end of last year, to 20%.

In an attempt to get to the bottom of the issue, the government has now set up a task force involving the major banks and key government departments to examine whether banks are making life too tough for SMEs.

To get around the problem of scarce finance from traditional sources, SMEs have been looking to other sources of cash for investment and working capital, including factor invoicing, re-mortgaging or selling property and even pawnbrokers. Of course, there are costs associated with all of these options, sometimes quite steep costs, which is money the businesses concerned would much prefer to re-invest than fritter away. Another option, is to undertake a thorough cost management review to ensure hard-earned money isn’t being spent ineffectively or unnecessarily, thus retaining it in the business and improving cash flow. However, the key to success in this scenario is not just to identify savings but to implement them and then ensure they are maintained, perhaps even increased, in the long-term.