Banks restricting SMEs’ growth despite retail contracts
This claim comes off the back of a report by the Office of Fair Trading (OFT) stating banks were preventing SMEs from accessing alternative sources of finance.
The OFT said there were often delays in banks sharing the documents needed for alternative finance providers to offer a loan.
OFT chief executive Vivienne Dews said: “SMEs are a vital driver of growth in the UK. They need access to banking services and loans which meet their needs. Our work suggests there may be competition concerns in this sector.”
The latest Bank of England figures showed a drop of £0.3bn in small business lending in January this year. The latest research showed 45% of bank loan applications fail and that SME overdrafts accounted for £14.2bn in November 2013, according to financing firm SME Invoice Trading.
As a result, 69% of SMEs surveyed by financing firm Fleximize believed it was “very difficult” or “difficult” to secure a loan.
Pleydell-Bouverie, founder of marshmallow firm Mallow & Marsh, told FoodManufacture.co.uk she was surprised that banks had refused her request for a loan, despite having secured a contract to supply to 40 Sainsbury stores from March 26 2014.
Proved very difficult
“On paper I should be a good candidate [for a bank loan], but it has proved very difficult,” she said. “The perspective is banks should help SMEs, but they are not.
“Banks claim all the time that they are supplying small businesses, but in reality they take a few heroes. I was rejected on a match funding perspective. If they are not even helping businesses to get finance from somewhere else, that’s quite surprising.”
Harriot Pleydell-Bouverie had asked banks for essential funding for packaging, marketing and potentially increasing capacity.
“I am looking for in the region of £50,000 – specifically for upfront costs such as packaging and promotion,” Pleydell-Bouverie said. “Sainsbury has over 1,000 stores and if we do well in the 40 we are going into we could roll out into more, but we can’t do that without the money needed to tell people about it.”
Banks have asked Pleydell-Bouverie to consider a smaller loan, but she said they was no guarantee that would be approved. She added that if the business was worth investing, it was worth investing the full amount needed.
Unclear and unaware
She claimed that banks made it unclear what they required from SMEs and many were unaware of alternative financing options.
“It is very frustrating. I’ve been looking at this process since September and it is still very unclear what my options are,” she said. “It makes it very difficult to know if I’m going down the right route.
“Clarity is a big problem facing SMEs – it needs to be made clearer what banks require. Some get a loan that they shouldn’t, others wait four years, get it, and then realise it should have been made accessible ages ago.”
Pleydell-Bouverie said she had considered outside investment and crowd-funding, but didn’t want to risk giving away control of the business.
“I am trying to avoid investment, because it is a cash flow problem not a growth problem. Crowd funding is fantastic, but in the long run it is negative as it would result in other people having a say in how the business is run. Crowd funding and investment would both result in giving away equity.”
Mallow & Marsh currently produces about 7,000 cartons of marshmallow a month from a contract manufacturer in Yorkshire. Pleydell-Bouverie said that although the potential to increase capacity was huge, she would not be able to do it without the loan.
“If it wasn’t for Sainsbury and the small firm in Yorkshire, who are incredibly supportive, I would be in a much worse position,” she claimed. “Sainsbury has helped with invoicing options, by offering money upfront.”
