It’s all very well politicians telling banks to lend money, and I for one applaud Vince Cable’s direct and forthright approach, but the fact remains that no amount of direct threats will make a jot of difference to bank lending.
Before becoming an MP in 1997, he had built himself an impressive CV in the private sector and by the time he was elected to the Commons, he had risen to chief economist at oil giant Shell. But this all counts for nothing when faced with the might of the British banking system.
In his recent green paper he outlined controversial new plans to boost cash flow to small businesses, which may potentially include forcing banks to sign up to the same kind of lending agreements placed on part-nationalised banks such as RBS and Lloyds.
This, in other words, means bankers’ lucrative remuneration packages could be hit if they don’t up lending to small firms. For this I commend his commitment to freeing finances, but one should never provoke a wounded animal.
Embattled banks believe they have a failsafe excuse – if it was risk driven lending that caused the problem then surely it is not the solution. They genuinely do not believe they should lend when the deal is ‘risk driven’ and thus could worsen their already weakened balance sheets.
In a nutshell, it’s all about presentation and appetite for risk.
The last two and a half years, since the financial crash first impacted, have been a dramatic learning curve for all of us in the financial sector. I have been in the industry myself for well over 35 years and I think that is putting it mildly.
Many of us have lived through previous recessions and survived but this time it’s the banks themselves that ‘went bust’ so we are all on new territory. We have literally had to write the rule book all over again, and unfortunately to many banks this means lending to prime applicants only.
The banks hold all the cards, because they in effect hold all the money.
Of course one of our main concerns is that many customers think commercial lending lives and dies on the high street, and that there are no other options available. Of course this is where Cable’s argument becomes short-sighted, because he himself has fallen into a major trap.
If you’re a businessman who needs ongoing funding for your business on a daily basis, has new expansion plans, has a new project or order that needs financing or, quite simply, has a start-up idea, then the trick is to look past the typical banking system.
Throughout the UK there are over 15 financial businesses who still lend to near-prime and credit adverse applicants. This has fallen from approximately 40 in 2007, and this reduction is no bad thing as it has removed a lot of unscrupulous practitioners from the marketplace.
What we have now is a number of good, honest, reputable finance companies, and by shopping around there still exists very good rates and offers that can be quickly moved through from application to completion.
An argument for another day is that if we can push businesses to use such companies then banks will soon ease their lending criteria as they realise there is a safe market where they are no longer making a profit?
However, as it stands at the moment, Cable can threaten as much as he wants, but until he can tell the banks why they should lend, I’m afraid we are stuck in this financial rut and banks still rule the roost.
Roger Dewsbery, is a senior underwriter at commercial mortgage and bridging finance specialists Crystal Mortgages.