Banks are still lending to small businesses, but firms will have to make more of an effort than ever to be an attractive investment, according to a business expert.
Corporate finance specialist Mark Neath from accountancy firm Old Mill
, SMEs should not give up hope of getting a business loan
, even in tough financial times.
"As a corporate finance specialist, one of the questions I am asked most in the current climate is: are the banks still lending?” says Mr Neath, “and the answer is yes and no.
"Banks are still looking to lend - it is one of the ways they make money – but they are of course being a lot stricter on who they lend to."
Mr Neath says that while bank managers have always had to present a good case to obtain approval, the current financial turmoil means each loan
case has to be even stronger than ever.
He explains that the key factors used by banks when deciding whether or not to lend to a firm are management, sector and defensibility.
Although the strength of management, the safety of the sector and resilience have always been key considerations, what has changed is the extent to which resilience is being challenged,” he explains.
"Banks are now asking for ‘what-if’ forecasts assuming a 25 per cent drop in turnover and for management to explain their cost cutting plans in such an eventuality.”
Mr Neath says that the sector a business works in is also even more stringently analysed and says that although no-go areas vary between the banks, ones particularly exposed to the recession have to work even harder, for example commercial property and the retail motor trade but whereas businesses like residential care homes are largely unaffected by recession so remain attractive to lenders.
"Banks are looking to make the best return they can on scarce capital, so if your proposition includes other products purchased from the bank, for example foreign currency or interest rate hedging, you may have a better chance of convincing the bank to commit capital to your business." says Mr Neath.
"If you have an investment
to make or a deal to do, there are still plenty of opportunities out there - don’t be deterred by the doomsayers in the press. It can still be done; just don’t expect it to be easy.”
© Fair Investment