Spotlight back on banks' poor service to small businesses

24 March 2009

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Evidence is mounting that small business customers are being treated poorly by the UK's banks, the Forum of Private Business (FPB) is arguing.

According to a survey carried out by the UK200Group, an association of independent professionals including lawyers and accountants, almost half of respondents (47%) said their banks had imposed changes to overdrafts or loans, with 27% claiming that these changes had taken place without notice. Just 11.4% were consulted over changes to lending agreements.

More than a quarter of respondents (27%) said that offers of lending had been ‘withdrawn' or ‘varied' during the past six months. Further, 13.5% have had their facilities removed altogether.

Kevin Dickens, UK200Group president, said: "With the spotlight focused very firmly on the banking sector at the moment, our survey is another indicator that banks need to tidy up their act and do a great deal better for their clients."

The findings of the survey come despite the results of the Government's first 'mystery shopper' exercise testing lenders on staff awareness, understanding and promotion of the Enterprise Finance Guarantee (EFG) scheme, which has been introduced to improve access to finance for small businesses. According to the Government, three-quarters of business advisers have a detailed awareness and understanding of the EFG's features and its role.

Phil Orford, Chief Executive of the FPB attended the latest meeting of the Small Business Finance Forum along with representatives from the Government and banks. He remains concerned at the lack of awareness of the EFG.

"Despite some improvement in lending as a result of the Government's intervention, there remain inconsistencies with the communication and delivery of lending schemes," said Mr Orford. "Research shows that many struggling yet viable firms face an uphill battle to access the credit they need, are being subjected to steep increases in lending costs. The central problem appears to be exactly how the banks define viability."

The UK200Group survey found that only 50% of respondents rated their banks as 'satisfactory or better' in understanding their customer's needs, living up to their advertisements and showing flexibility.

Further evidence from the FPB's recent Economic Downturn Panel survey, carried out between 4 and 11 March 2009, shows that a reason for this declining confidence is a perceived lack of support. Not a single respondent said that bank support has improved. Half reported no improvement and 50% said it is getting worse.

The Government did not escape criticism, with 59% of respondents believing that, despite the EFG and other liquidity measures, its support for their businesses has not improved. In addition, 35% believe it has deteriorated. Only 5% said the Government is providing them with better support.

In its latest quarterly Referendum survey, members of the FPB voted for restoring business confidence (65%) and restoring consumer confidence (63%) as the two issues they most want the Government to prioritise in the 2009 Budget in support of their businesses.

Steven Harkin owns Saxon Oil, a small oil distributor based in Coventry. He uses his bank's factoring but was told recently it would stop paying his bills because he went £5.07 overdrawn.

"The banks have become totally inflexible and are now playing to the letter of the law. You virtually can't operate unless you dedicate all your time to credit management, they won't make a single penny allowance," said Mr Harkin. "Previously we were able to call the bank manager to let them know when a payment was coming through. The situation is ridiculous."

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Spotlight back on banks' poor service to small businesses

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