Can the new banking taskforce help local business?

By Ros Bromwich - 14 October 2010 

Fresh hope for SMEs suffering from the credit squeeze comes hot off the newswires this morning in a statement from Barclays chief John Varley, who leads a consortium of six banks in the new Business Finance Taskforce, which was announced in August.

In recognition of the fact that the recovery will be led by private sector SMEs, the taskforce was devised as a way for the major banks to remove barriers to lending and to provide small businesses with the cash injection they need to expand or improve their services.

The banks have now committed to 17 actions in three broad areas: improving customer relationships; ensuring better access to finance and providing better information and promoting undertsanding, according to the Banking Times website.

However, the smallest of SMEs won't be helped: the Taskforce has pledged to aid growth by lending £1.5bn to companies with a turnover of between £10m and £100m. And it has been reported in The Financial Times that as few as 150 companies may be helped over 10 years.

However, says John Varley, new lending is not the only factor. An 'army of mentors' in the banks will help companies who may be worried to prepare in plenty of time before they approach banks to renew their credit arrangements. Varley also stated that 85 per cent of applications for new credit are successful, although that's not much comfort to the other 15 per cent.

Swansea is short of banks

Is bank funding the best source of cash for your business? A large number of specialist funders will provide support for enterprises towards which the high street banks appear more risk-averse. And here in Swansea, it seems we are actually short of banks.

At a networking function organised recently by the South Wales Chamber of Commerce, the Chamber’s director Graham Morgan remarked that during a trip to London he’d been reminded how many more banks are operating in the UK capital than there are locally. As well as the main UK players, London is home to names such as Clydesdale and the Irish banks, plus assorted overseas-based banks, some of which used to be in Wales but have now departed.

This, he suggested, could be having an effect on the ability of local businesses to source the cash they need to grow or sustain themselves.

In Swansea, there is a limited pool of banks for businesses to approach: the main four, namely Lloyds TSB, HSBC, Barclays and NatWest (part of the RBS group) plus the Sweden-based Handelsbanken, which has been running a Swansea office for a couple of years. And that’s really it – the building society-style banks can usually lend money only for property, so it’s very much a seller’s market for business finance.

Another issue is the fact that the decision-makers within the banks are, often, not actually based here.

The Chamber of Commerce can play an important signposting role for businesses looking for cash from a bank or other lending institution, says Graham Morgan.

“We know the relationship managers in the banks and can point business customers in the direction of a named person,” he says.

However, local bankers are keen to say they are open for business – to the right clients.

“Whether they are start-ups or established enterprises, if we deem the business viable we will lend money,” says NatWest Swansea business development manager Steve Phillips.

“Businesses can improve their chances of getting finance if they can provide their accounts, accurate and up to date MI, debt and credit lists and so on,” he says.

“It’s pretty obvious, really. New start-ups need to present a good business plan if they want money - but it doesn’t have to be a huge War and Peace-style document.

“We need to know what they plan to do, what their past work experience is, and ideally two to three year projections, how they expect to achieve their turnover and whether their costings are realistic.”

If the bank option just doesn’t work, the good news is that there are various programs around offering unsecured finance to Welsh companies – sometimes in return for an equity stake in the business – which can help get you off the ground.

This week came the announcement that the amount available from local authorities in West Wales (which includes Neath Port Talbot, Swansea, Carmarthenshire and Pembrokeshire) has increased from £5K to £10K to finance up to 40 per cent of a project. More on that next week.