It is a natural reaction that as something becomes more risky we tend to shy away from doing it.
This has become something of a policy statement from banks in the UK who, as the economy weakens and Government and Bank of England concerns over Brexit continue, withdraw their support for the market. In particular the SME market.
Unsecured lending has become a thing of the past. Admired like an extinct species but never to be seen again.
Security requirements have become tougher and tougher and often bear little relationship to the purpose for the business funding and more to the banks’ paranoia over the return of their principal sum
Is this a temporary phenomenon, driven by the current low interest rate environment that is eating into banks traditional business funding method as the gap between interest free funds and lending rates falls to an all time low?
Or, is it a more structural change in the environment where banks’ traditional risk management credentials are replaced by a more pragmatic and systematic approach?
Perhaps it could be that it is more difficult to pass an application for credit, based upon the project itself, than on the security offered.
Business Funding Options
Finance Directors, facing ever more challenging business funding issues, are having to be more creative. So what is available to an SME that is struggling to finance its cash flow?
- Invoice financing is a major product now and there are specialist businesses proving this product on terms that aren’t too onerous on a disclosed or undisclosed basis.
- Asset finance can also provide a solution when it comes to capex.
- Leasing and various other innovative solutions provide access to funds where traditional funding may be closed.
The fading of the “personal” relationship, built up by a relationship manager, is perfectly illustrated by the fact that banks, in general, see more profitability in an inward switch than they do concern over a losing a client.
The banks are obviously under attack from a number of directions. Their business is being eroded by the number of specialised and boutique providers of what had been seen as products of their captive markets. Foreign Exchange and Trade Finance are two glaring examples.
The ability of clients to shop around has brought them larger savings in fees but that devastated the bank’s traditional overall relationship profitability model leaving them unable or unwilling to compete with tech savvy businesses prepared to go the extra mile to win business
The recent news that Royal Bank of Scotland and NatWest are going to close a number of branches (one in four for RBS) is another example of how, despite the fall in usage of branch networks, banking may be losing touch with its place in both society and the business world.
