Monday afternoon saw Alistair Darling’s latest attempt to bash some bankers’ heads together, with the laudable aim of getting them to start lending money to small businesses at more competitive rates. And while we understand the banks’ complaints that the situation is rather more complicated than the politicians make out, it’s also true that their reluctance to lend is driving some small firms to the point of extinction – as one MT reader attests...
The (not entirely disinterested) British Bankers Association reckons lending to small firms actually rose £391m in June. But Darling’s not convinced: ‘We need to get to the bottom of what is happening with individual banks,’ he told the BBC, stressing that he’s ‘extremely concerned’ that loan rates remain so high despite interest rates being at a record low. In some respects this is just political posturing: as the BBA points out, the banks can't really lend money at 0.5% when their own cost of borrowing remains higher than that. You also can’t blame them for tightening up their requirements (better late than never). And lest we forget, it's the Government that's insisting they should rebuild their battered balance sheets.
On the other hand, since the taxpayer is the only reason some of these banks are still standing, it’s not unreasonable to expect a bit of give as well as take. And small firms are definitely still feeling the squeeze, as the testimony of one MT reader who contacted us yesterday proves. Apparently her company agreed a bank overdraft late last year, personally guaranteed by one of its directors. But when the directors collectively tried to apply for the Government’s much-vaunted Enterprise Finance Guarantee scheme, they were informed by the bank that they wouldn’t qualify unless they had exhausted all other possible personal assets – to include their family homes.
So they were forced to apply for a business loan instead, and after four months of to-ing and fro-ing, eventually signed guarantees for a £90k loan. They drew down £50k immediately, but when they tried to bank the extra £40k, they were informed that their original overdraft now counted towards the total, meaning there was no more money left in the pot for them to borrow. But this meant the bank had summarily changed the overdraft terms without telling them – having initially been personally secured by one of the directors, it had now been added to the charges on all the directors’ family homes, without any sort of notice. And they’re still waiting on that extra £40k.
As you’d imagine, our reader has been left feeling pretty aggrieved about this. ‘[Our bank] has effectively misinformed and misguided us and their continued procrastination and inefficiency over the last few months has had a severe detrimental effect not only on our business but on the lives of the people involved,’ she complains. And we’re sure her company isn’t the only one to have suffered like this...
In today's bulletin:
UKFI rudderless as Kingman jumps ship
BP profits halve on lower oil prices
Editor's blog: BSM picks Fiat and gives Vauxhall the boot
Broadband adverts exaggerate shocker
'Our bank is putting our entire business at risk'