With the launch of the Business Growth Fund and disappointing lending figures, Anna Blackaby finds that West Midland firms’ number one plea is simply to be understood by lenders.
When it comes to banks, all that West Midland firms want is a return to the old-fashioned way of doing things – a world where local businesses and bank managers enjoyed meaningful interaction and lending decisions were taken locally.
But that doesn’t seem any closer following a mixed week for the relationship between industry and the banks which allow its wheels to keep turning.
Things started well with the launch of the Business Growth Fund in Birmingham, which will be based in the city with a remit to take stakes in growing firms.
But that was swiftly followed by the release of new Project Merlin figures on lending to SMEs for the first three months of the year, which showed banks fell more than £2 billion short of their loans target.
That prompted Vince Cable to warn he would take action if banks failed to live up to their promises – although banks responded by saying the shortfall was down to muted demand among small and medium-sized firms.
For many in the West Midlands the solution is clear – a return to the days when bank managers understood the companies they looked after, and had the power to make lending decisions locally.
It’s a common complaint that there has been a creeping “computer says no” mentality, which sees good credit-worthy businesses turned down for lending based on centrally laid-down criteria from the banks’ head offices.
Richard Halstead, Midlands region director at manufacturers’ organisation EEF, said a lack of understanding of how firms operate was a major barrier to lending.
“While it is early days for the Merlin agreement, we have been sceptical about the degree to which this target-based approach would lead to a significant improvement in credit conditions for SMEs,” he said.
“Progress on the key issue of a lack of competition among the banks, as well as insufficient transparency in lending decisions and the lack of understanding of banks’ customers must now accelerate.”
David Caro, chairman of the Federation of Small Businesses in the West Midlands, agreed that it was relationships, not targets, that mattered.
Mr Caro, who also runs manufacturing firm Qualplast, said: “As we were coming out of the recession, banks were looking at history rather than looking at what projects those companies had in the pipeline
“Of course coming out of a recession, their history isn’t going to be great.
“It’s about trying to understand the business and where it’s going to rather than where it’s coming from.
“But you are finding that some of the foreign banks like Handelsbanken have got a proper manager and they seem to be making an attempt to get to know your business a lot more.”
A focus on looking backwards rather than forwards has prompted manufacturing firms to call on banks to change the way they look at contracts.
The EEF in the West Midlands recently called for lenders to review the way they treat financing for firms that have won contracts, citing examples where companies had won large orders with big suppliers but were finding it difficult to borrow in order to fulfil them.
But speaking to the Birmingham Post after the launch of the Business Growth Fund in the city, Angela Knight, chief executive of the British Bankers’ Association, said the difficulties in firms obtaining finance for contracts were well-known, and insisted the organisation was looking at ways to improve the situation with announcements to come out shortly.
She said the change in banks’ behaviour was due to the increased demands on them to hoard more capital. “There are some aspects that would have been considered normal finance which have now become high risk,” she said.
“That affects costs and availability in particular in contract finance.”
“It’s a well-understood concern and one which the banks are addressing.”
The question of lending aside, there was more positivity around the launch of the Business Growth Fund.
Created in response to criticism the banks weren’t doing enough to support UK businesses, the fund aims to take stakes in firms with a turnover of between £10 million to £100 million a year.
It has been dubbed a “3i for the 21st century” and its Birmingham-based head of investments is Richard Bishop, who previously ran the Birmingham office of 3i.
Mr Caro welcomed the launch of the new fund, citing the success of similar institutions in Germany.
“This is something they do a lot of on the continent – it’s great, but it’s a different way of banking we have probably got to get used to in the country,” he said.
“As long as the banks then don’t try and sell the company out from under the entrepreneur who has founded it, it’s potentially a very good thing.”
Lastly, the week has seen confirmation that the Government’s Green Investment Bank would be open to make loans by next April.
The EEF has been a vocal critic of carbon-cutting targets, which it says unfairly disadvantage UK manufacturers.
But it welcomed the bank, urging policymakers to give manufacturers a hand to go green, rather than bear down on them with taxes and regulations.
Mr Halstead said: “With a modest amount of funding to start with, the Green Investment Bank should focus on developing innovative low carbon manufacturing as well as energy infrastructure and decarbonising existing manufacturing.
“There is an opportunity for the bank to provide a carrot for such investment in innovation to balance the sticks from other green taxes and regulations.”