“The meeting was another important opportunity to make decision makers and representatives from the major banks aware of just how difficult it is for small businesses at the moment,” the FPB’s Chief Executive, Phil Orford. “The results from the FPB’s economic downturn panel show declining market conditions, increased costs and cash flow issues due to continuing lending restrictions and poor payment practices. There is also decreasing confidence in both financial institutions and the Government.”
He added: “However, we would urge small businesses to be hopeful. There is ongoing dialogue behind the scenes and the FPB will continue to represent the interests of its members to those individuals who can make a difference. These are small steps, but steps in the right direction.”
Mr Orford revealed that the key concerns of the FPB’s members on the panel, in descending order, are:
- Lack of orders/business confidence
- Cash-flow
- The banks’ volatility/lack of support for business
- The weakness of sterling pushing up raw material and import prices
- Changes to credit insurance/loss of normal trading terms
- The inflexibility of HMRC
- Regulation, particularly employment law
- The cost of utilities
Lenders requiring additional assets in order to secure loans, because of falling house prices.
Small businesses on the economic downturn panel reported an overall decline in market conditions and lending, as well as in confidence in the banks and the Government. During the past month, 72% of the FPB’s panellists experienced a declining market for products and services, while 61% suffered because of an increase in late payments from customers.
Just over half of all respondents (53%) believe that financial service organisations, including banks, are less able to manage risk than before (45% think there has been no change). In addition, 55% believe that the banks’ support for smaller firms has diminished, with 45% criticising the Government’s lack of support. Compared to just 2% of panellists who have experienced a reduction in their banking fees, 26% have seen fees increased. Fees have stayed the same for 72% of the panellists.
Further, 40% said that complying with regulations has become more costly, 44% that their businesses have become less viable and 24% that competition within the market has declined. In all, 30% of panellists said that access to finance, including additional banking fees, arrangement charges and outright rejections for lending, has become more of a problem.
When asked which form of lending was more important, 55% cited overdraft facilities and just 5% opted for loans. 40% of respondents believe overdrafts and loans are of equal importance. In addition, 27% of respondents said that terms and conditions of loans have deteriorated over the past month, while 57% saw no change and 17% reported improvements. For overdrafts, 28% experienced a deterioration of terms and conditions, 63% saw no change and just 9% an improvement.
Members were also asked about banking fees and the securitisation of lending. Following the results of the previous panel survey, in which 37% said they had secured business borrowing against their own homes, 20% against their business premises and 20% against their debtor book, 14% of panellists reported an increase in securitisation. The additional security required by lenders is most often in the form of further personal guarantees.
At the second meeting of the Small Business Finance Forum, delegates agreed a statement of small-business lending principles from the banks and to set up a monitoring panel, requiring banks to provide more frequent, detailed information about lending levels. In addition, banking representatives agreed to put in place mechanisms to allow dissatisfied small-business customers to switch banks more easily. The next meeting of the Forum will take place in mid-January.
