A crisis of confidence is curbing SME lending and harming recovery
CONFIDENCE can be the difference between success and failure. For some time, there has been a large number of businesses that are too pessimistic about their chances of getting the finance they need from their bank to grow.
I can understand this mindset. These are people battling to keep on top of everything you have to do when you run your own shop or firm. In a quiet moment, they pick up the paper or listen to the radio only to hear people telling them “banks aren’t lending”.
The reality is rosier. The latest Bank of England figures show that new lending to small and medium-sized enterprises (SMEs) during the last three months was 27 per cent higher than in the same quarter a year earlier. Net borrowing by smaller business is also growing again.
But perceptions matter. If just one entrepreneur stops at a bank’s door and turns around because they think they will not get the finance they want, that’s one too many. It is up to us to help give them the confidence and skills they need to grow.
That’s why the BBA and Britain’s five largest retail banks are today launching a year-long campaign to build confidence and provide support to businesses seeking bank finance. At the campaign’s heart lies a simple truth: businesses are a lot more likely to get finance from their bank than they think they are.
Independent research led by BDRC Continental shows that, while only 37 per cent of SMEs planning to apply for finance believe they will get approval from their bank, approval rates actually stand a lot higher: at almost 67 per cent.
Working alongside business groups, entrepreneurs and government, the campaign aims to speak to those members of our community running businesses worth less than £25m. It will also highlight the independent appeals process, which allows any business that has been turned down for finance to oblige the bank to look again at the decision. In nearly 37 per cent of cases, applicants end up with some or even all of what they wanted to borrow, often because more information comes to light.
Now, to the odd cynic, the launch of this campaign looks eerily well-timed considering the recent renewed political interest in the banking industry. As it happens, the England cricket team was beating the Australians in sunny Manchester when the planning for this initiative actually began.
The real motives for this campaign are more straightforward. First, banks want to lend. It is, after all, how they make their money. Second, increasing the confidence of businesses to borrow could make a tangible difference to the economic recovery. Third, it’s part of the well-established Better Business Finance programme, which provides a range of support from mentoring to finance tools.
We estimate that among the 270,000 businesses who currently seek bank finance, tens of thousands would use the money to boost spending or expand, buy equipment, increase productivity and or improve customer service. More confidence will generate stronger investment, more jobs and higher tax receipts. Here’s a campaign that really matters.
Anthony Browne is chief executive of the British Bankers’ Association (BBA).