Tax & Accounting News

Small Firms Hit By ‘Inconsistent’ Lending Policies

04/08/2009

Small businesses are failing to secure the finance they need because banks are not being consistent in their lending policies, according to research carried out by polling firm Ipsos MORI on behalf of the Institute of Chartered Accountants in England and Wales (ICAEW).

It found there were often differences in lending decisions between bank managers and their head offices, and that many small businesses were nervous about approaching their banks for funds in case it triggered increased bank charges.

The ICAEW said banks needed to be more consistent and transparent in their dealings with small businesses, and produced a number of recommendations for how these dealings could be improved.

Central to restoring confidence, the organisation argued, was improving the communication between banks and businesses at the start of the lending process. Banks should say how long loan applications are likely to take, make clear which decisions are made by managers and which by head office, clarify the stages of the application process, detail the enforcement regime for any breaches of the lending agreement and spell out exactly how much financial information will be required from the business concerned, including regular management of accounts.

Chief executive Michael Izza said: “Banks need to restore the trust between themselves and their small business clients. A commitment is needed to increased transparency and consistency. This in turn will help the relationship between the two, which has deteriorated rapidly during the recession.

“The relationship between banks and customers needs to be supportive, not just in the good times but also in the bad.”

 

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