Saturday, 1 October 2011

Businesses can't Bank on it

Despite some of the PR banks have managed to get out there about supporting small business the reality is very different. I've worked with many SMEs in helping them raise capital and seen how the reality of getting a business loan, even for established companies with strong cash flow, is as hard as it's even been. The FT today reported that loans to SMEs has fallen significantly again; I'm also keen for more to be revealed about the criteria for these loans as even those that are being approved are not really company loans. They are in fact asset backed loans as currently banks will nearly always want to see their loans 100% by tangling assets. Often these assets are personal assets of the directors and not even company assets.

Most SME don't have big balance sheets with lots of assets and apply for loans on the basis that the projected cash flows (supported by orders and / or historic cash flow) demonstrate repayment of the loan. However to get a business loan approved these days you'll typically have to personal guarantees supported by a personal asset and liabilities statement and have a net asset position large enough to cover 100% of the loan. This typically means putting the family home on the line and defeats the purposes of setting up a limited liability company in the first place. Also should this really be classed as a business loan?

Entrepreneurs in the UK have always formed an essential part of the economy, creating value, employing people and paying taxes. Without support from the financial sector the economy will struggle to recover.

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