The consensus was that although things were better than much of the press would have us believe, businesses were being very cautious, reluctant to borrow and only just really starting to think about growth again. And that the media had done a good job of putting business off applying for funding, fuelling a fear that they’d be turned down.
4 months later and we’re seeing a very different economy, so I wanted to find out what’s changed and are things any better?
So this week I’ve spoken to several senior bank managers in the £1m to £20m turnover bracket across the East Midlands. As in my previous bank funding report, nothing in this blog has been through any press offices or compliance. Everything is off the record and exactly what the bank managers are seeing on their patch.
Are you seeing more businesses coming to you for funding?
All banks say they’re seeing a marked increase in the number of enquiries across all business sectors.
What change have you seen in business confidence in the last few months?
They’re generally seeing much more confidence in business owners although people are still being rightly cautious about taking on debt.
The last few months of good news and better economic indicators mean that businesses are now feeling confident enough to look 3-5 years ahead, and take some medium term decisions.
And there’s more willingness to borrow, as they feel they can see the return on their investment
What change have you seen in your bank’s confidence in the last few months?
Generally being more receptive to borrowing enquiries and are actively looking to support their clients’ growth plans.
One bank reported that their new lending has increased three-fold this quarter compared to last year. More certainty in the banks own business means their profit forecasts are more reliable, and so they can be more consistent with their policies and lending criteria.
Another told me that they’re proactively assessing their client’s loans and offering capital repayment holidays to help the businesses hold onto their cash to fund growth.
If so, are they borrowing to fund growth, or for other reasons?
It’s pretty much all to fund growth:
- Catching up with their investment programmes; so vehicle, plant and machinery and IT asset replacement that have been on hold during the last few years.
- Funding new machinery or premises to accommodate growth.
- Increased working capital to fund growth.
- Acquisitions seem to be back on the agenda too, with more companies looking for funding to buy other businesses.
Are lending criteria remaining as strict as they were during the recession or are you seeing any relaxing of the credit process?
The basics remain as important as ever:
- A strong management team with a good track record
- A well thought-out business plan
- Robust management information
- Ability to service the debt
- Security
Some banks report that although their criteria are definitely more stringent that pre-crisis, they have seen their criteria relax a little over the last 12 months, reflecting the increased confidence within the bank and their appetites to lend.
Are there any sectors you’re still not lending to?
Most banks still cite the property development and investment sector, but some banks claim they have no sector restrictions – it’s all about a viable business that can meet the general criteria.
Is there any improvement in the media led perception that banks still aren’t lending?
Its felt overall that there’s a more positive steer from the press and more people are getting the message that there is money to be lent. Of course good news stories aren’t what they focus on. “Look what the bank did to us” stories will always be more popular than “we love our bank manager” ones! Many businesses are still paying down loans early to reduce debt on their balance sheet, which makes the net lending figures look lower than they really are. The press could help business confidence with some more positive coverage.
Are you seeing any increase in businesses choosing peer to peer lending as an alternative to bank funding?
All banks reported that they are seeing very little evidence of this, but probably because they don’t get asked in the first place. Peer to peer lending plays a really important part in filling the gap where the banks genuinely can’t help, but it’s always worth asking the bank first – they might surprise you!
So to conclude I have to say I’ve had a pretty unanimous picture painted by the bank managers across the East Midlands. Things are on the up, lots more confidence around although it seems much of the uplift in lending is asset based, where there is good security.
Based on what I see and what business owners tell me I would agree generally, although my personal experience on the couple of deals I’m working on this week is that working capital funding is quite challenging to get hold of, with many hoops to be jumped through. But I think we have to say overall that we are seeing the most encouraging signs yet that things really are, finally, getting better.