David Boyle over on The Real Blog has just written a very good piece in relation to the Lord Oakeshott resignation and 'Project Merlin'. In this piece I think he has hit the nail on the head with his assessment of what is wrong with our banking system:
The real problem is this. It isn’t that banks are somehow unwilling to lend money to small businesses; it is that they are no longer set up to do so. They have no local managers empowered to take decisions. They have risk software that rules out most deals. They have such onerous conditions and charges that many SMEs shun them altogether.
I couldn't agree more. I see this first had with the company I currently work for. I don't really wish to go into details on our business but we've been in discussions with a major bank for nearly a year. At local level they are very enthusiastic (as the fees that they would charge us for the service are quite significant) however we are yet to hear anything back from national level. They are currently now waiting on our year end results and although I can understand the caution it is really frustrating as it limits our ability to grow. We are not a company in trouble, just one that in order to finance the big contracts at the start we need to be able to receive the advances that come with them and for that we need bank guarantees. We also pay a fortune for this privalage as well as them holding on to 20% of the advance as security.
I also see the very large charges that get placed on us by our existing banks, mainly due to the large number of accounts that we need. In addition as a Euro trading company lots of our facilities are in Euros however they insist on charging us in sterling so they convert the amounts at a rate that is often worse than we would get in the open market.
Most banks we have spoken to assume we are too risky without understanding how we work and those that do understand it at local level and realise why there is little risk and potentially large reward aren't able to feed this through the chain as it's simply not needed. The banks that we currently use know it's difficult for us to go elsewhere and as such can impose obscene charges. In the end it boils down to the fact the banks don't need our business yet we need them.