Small businesses on bank lending


Chancellor George Osborne has warned that banks need to start increasing their lending to businesses, stressing its importance to the UK's economic recovery.

Here small business owners describe the problems they have encountered in getting loans in the current environment.

Sue Acton runs Bubble & Balm, a bodycare company in Leamington Spa

I run a small business, created from scratch, which last year became the first 100% Fairtrade bodycare company in the UK.

When we started trading I approached some banks, with no success. I wasn't too disappointed - I knew it was unlikely we'd secure funding before we were selling our products.

I also have a good understanding of the sort of criteria you have to meet to get a loan, as I spent ten years working for a bank in marketing and communications for small and medium enterprise.

Now however, we have just launched our products in a major supermarket and we recently won two entrepreneurial awards which also provided us with some financial support.

I did also manage to agree a £20,000 unsecured loan with my bank, for which I've given a personal guarantee.

We now need about £100,000 to develop the business, but each bank I speak to requires you to meet a whole load of other criteria before they'll even consider you for lending under the government's Enterprise Finance Guarantee scheme (EFG).

It feels like the government and the banks are just not talking to each other.

The only option for me is equity investment, in which I'd try to secure someone to invest in the business. But this means relinquishing shares in the business, which isn't ideal.

Tony Edwards runs Powersafe, a security systems firm in Haverfordwest

image captionMr Edwards has had to put his home on the market to generate capital

I am managing director of a company that designs, installs and maintains specialist security systems. I've been developing the business for the last 25 years.

Before the credit crunch the banks could not do too much to help me expand, then during the credit crunch a number of our clients put our contracts on temporary hold until they knew what was going to happen.

During that time I had to retain my staff, I asked the bank to help and they refused to.

I funded staff overheads with credit cards and family loans, and used the time to improve our systems and retrain my staff.

After about nine months the contracts started to reactivate. However by this time we had used all our resources and desperately needed working capital. Key suppliers had reduced our credit limits so we had to purchase from less competitive sources.

This last year we have won a number of large contracts but the banks are still not willing to help with working capital, because I have borrowed money for our new premises.

I have now put my home and my business premises on the market to get free of the bank's control, and to provide the working capital my company urgently requires to carry on trading.

Simon Green has a design business in Edinburgh called THK Design

image captionSimon Green spoke to six banks but did not secure the loan he needed for his business

I run a small design business in Edinburgh. In 2008, we decided to take on another design agency that we knew very well.

We agreed a very favourable deal with them, but by the time we got to funding the deal, the economy and banks were in big trouble. So we waited until February this year and started approaching banks for a loan.

I spoke to six High Street banks in total. They were very positive and we went through the initial agreement process. I provided information on everything, they visited the new company.

We gave them an incredible amount of detail. It was all looking very hopeful. Six months later, after further expense and a raft of pointless meetings and additional work, we were refused by all.

The excuse was we didn't fit the banks' 'criteria'. What the actual criteria is we're still not sure. The reasons they gave made no sense.

The whole thing has caused a great deal of discomfort. We spent a considerable amount of money, some £8,000 on accountancy fees and it got us nowhere. We now have to look at alternative ways of pushing forward with our business deal.

Richard Boreham runs Kettering Sewing Studio, an embroidery business in Northamptonshire

My wife and I grew our business from nothing in just under three years. We now have five full-timers and a Saturday girl. We have tried to grow without need of the bank, but this has proved impossible.

When we went to our bank for a loan to expand we hit a brick wall. We're in a position to afford to borrow more money, but the bank wants us to jump through hoops.

I want to grow based on our past earnings. They want evidence of future cash flow, which I think is impossible. Having spoken to other people, I assume the bank will just look at any figures I give them and reject our application anyway.

We are still growing but the banks are putting the breaks on the numbers we can hire and the machinery we can buy.

As a result we don't dare advertise because we might not have the scope to meet the demand. We can only grow as fast as our cash flow which is frustrating because our business is in a fantastic position.

All we need is a good old bank manager. Someone who knows the local economy and someone who could visit to see first-hand our business and our potential for growth.

David Cummaford runs Abcoma, a manufacturing company in Oldham

image captionMr Cummaford says he could employ an extra 10-12 engineers if he had more capital

We are a manufacturing company that builds machinery in Greater Manchester.

We predicted the downturn and managed to pay off all our debts about four years ago, but now that the downturn is over, we can't get any working capital from the banks.

We have a full order book of over £1 million and we could employ an extra 10-12 engineers tomorrow if we had access to more cash. But in order to make machinery, you have to have capital.

My bank manager says he would like to lend us money for working capital but the powers above him are making it almost impossible, even with security against property.

When the local bank manager used to have more power over making loans, credit was easier. Now people higher up make these decisions, but they don't understand our company or our industry.

The government schemes that are supposed to help small companies are so complicated and long-winded that they seem almost unworkable.

With the low value of the pound, we as exporters are doing well with sales but are being held back by lack of working capital and investment into UK manufacturing.

Let's hope the new government will find a way to invest in companies in the same way they have with their 'quantitative easing' which has only helped the banks.

Mike Staines runs Intec brackets, a TV brackets supplier in Bushey

I run a small business which supplies television brackets.

Christmas starts early for us, as we need to make sure we have enough stock and we order some of our material from China. We've decided to order more stock this year so that we can sell as much as possible.

With this in mind, I contacted our bank, who we have been with for the last two years.

I requested a loan from them of £20,000, in good time, so that we would have the funds ready to make our orders.

Our bank took ages to decide whether they would approve our loan, even though we were happy to give them security for the loan against our own property.

Eventually they came back to us offering a £350 arrangement fee and an eye-watering 19.95% interest. I nearly fell of my chair when they told me the rate.

Had I known the rate upfront, I would have explored other routes for getting the capital.

Now it's too late to look into other options, so we'll have to go with their rate.

I'm pretty annoyed about it - we're a captive audience and this is a complete and utter rip-off.

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