Are SMEs failing to give banks the right information?

The FPB suggests banks aren't lending to small firms because they're not presenting their accounts properly.

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Last Updated: 31 Aug 2010

Not surprisingly, when you ask your bank for a loan, they’re going to want some proof that you can afford to pay it back (after all, they’re not exactly flush themselves at the moment). That’s particularly true for smaller firms – and yet according to the Forum of Private Business, some SMEs are failing to secure finance because they’re not presenting their management accounts in the ‘correct format’. Now this sounds plausible, to some extent. But since this ‘research’ comes from a company that specialises in helping SMEs format their accounts, and since banks are still a bit reluctant to lend at the best of times, we’re taking it with a pinch of salt...

The FPB’s latest offering has been commissioned by CreditPal, presumably with the intent of persuading SMEs how essential its service is. But the underlying sentiment is a reasonable one: the FPB wants banks and business to work together more closely to make sure that good companies can gain access to finance, and that means presenting their accounts in a way that makes the bank’s lending decision easier.

The good news is that the recession has forced small businesses to get their house in order when it comes to internal financial management. 96% have apparently been able to improve their cash position by chasing those dastardly late payers, and 67% said they’ve been more careful when ordering supplies (no more fancy fountain pens then). Aggressive internal cost-cutting has also helped to protect the bottom line, while 25% have taken advantage of the Government’s ‘time to pay’ tax scheme. What’s more, 68% are apparently now producing regular management accounts.

However, the mathematicians among you will swiftly note that this means almost a third are failing to do so. And in some respects you can’t blame them, particularly if they’ve no intention of tapping the bank for extra cash any time soon. Producing these accounts is not only time-consuming but also expensive – about £500 a pop, according to the FPB.

But even if you’re not planning a loan application, management accounts are surely still worth the investment. As well as providing an accurate snapshot of the business to outside parties, they’re also the best way of keeping up with the data you need to make important decisions. In such an uncertain market, there’s a lot to be said for having this kind of information at your fingertips at all times.


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