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SMEs need backing of UK banks

Date Added: 21/11/2013  

UK banks will have to make widespread improvements if they are to back small to medium-sized enterprises (SMEs) better - a change needed to support the economy.

The Royal Bank of Scotland made headlines recently when it was criticised for a lack of lending to SMEs, but the truth is the same issues are found at most high street banks in the UK now.

SME owners are finding it extremely hard to get the finance they need to grow their business - and with the economic recovery depending heavily on them, this will have a knock-on impact. Over 14 million UK people are employed by SMEs, after all.

But what are UK banks doing wrong in terms of business lending and how can they improve?

Company owners often complain banks no longer understand the needs of SMEs and as a result are unable to serve them properly. Business relationship managers seem to have little knowledge of how running a business actually works, instead choosing to rely on box-ticking checklists to decide whether or not to grant a loan.

Banks then say demand for loans is down among SMEs, when the reality of the situation is that company bosses are so disenfranchised with high street banks that they have stopped even applying for loans. This can be seen through the fact alternative lending to SMEs in the UK is hitting new highs as bosses have to look into other options for their financing needs.

Too many staff members at these banks lack business knowledge and nous and therefore are not qualified to decide who should get a loan and who should not. Banks need to employ managers who understand how the economy relies on SMEs and are determined to help them to grow, rather than ones who refuse to approve loans because of the risks involved.

Banks also need to accept that one of their main roles in this post-recession society is to help companies get back on their feet and secure a brighter future for themselves. Too many banks have tightened their lending criteria to the extent that loans are virtually impossible to get.

A recent report from the National Audit Office revealed there will be a £22 billion shortfall by 2017 between the amount of finance available to SMEs and what they actually need.

This just highlights the extent of the problem and the improvements banks will need to make if they are to serve their purpose of providing small firms with the loans they require to grow.

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