Banks’ attitude to business must change
Business advisors warn new loan scheme could be in jeaopardy unless banks change attitudes
The UK’s banks must change their attitude towards risk when considering lending to small businesses, business advisors warn.
Robin Stevens, of accountancy firm Mazars, is urging banks to change their ways in light of the government’s launch of a new Enterprise Finance Loan Guarantee scheme (EFLG). He says that if the scheme is to really work then banks must approach it differently to how they viewed the Small Firms Loan Guarantee Scheme (SFLG). “The long established SFLG provided government guarantees of up to 85% of the loans advanced by banks. “However, in many cases banks often took the view that they were still exposed to a proportion of the risk and that if the loans were unattractive before the government guarantee they remained unattractive afterwards. “As a result, many banks did not actively promote the guarantee arrangements to the business sector and the scheme was relatively under utilised.” Stevens is supportive of the government’s attempts to inject cash into businesses, but is concerned that the EFLG is in danger of failing before it begins, because of the banks inbuilt aversion to risk. “I believe there needs to be real change in the approach to risk by the banks administering the EFLG in particular if these in-built barriers are not to get in the way of these much needed funds reaching the companies most in need. “After all, 25% of a bad debt is still a bad debt in the eyes of the lender, and that mindset needs to be addressed, and addressed as a matter of priority if these schemes are to succeed.” © Crimson Business Ltd. 2009