Phillip Monks
The number of complaints from small businesses about bank loans, has rocketed by 119 per cent in the last 12 months says new bank Aldermore.
496 complaints were made to the Financial Ombudsman (FOS) by small businesses about their bank loans or overdrafts over the last year compared to 226 complaints in the previous 12 months.
Aldermore says that these complaints are likely to be just the tip of the iceberg as only businesses with an annual turnover of less than €2 million euros (approximately £1.8 million) and fewer than 10 employees can complain to the FOS.
Aldermore says that the figures prove that there is rapidly growing discontent amongst small businesses over their treatment by the big banks.
Phillip Monks, CEO of Aldermore said: “Small businesses that we talk to actually feel betrayed when their businesses is running fine but the bank still decides they are not going to renew their loan facility.
“Another complaint we hear from companies is that the bank is going to renew their loan facility but only if they pay a huge arrangement fee – a fee they were never asked for when they first took the loan out.
“Some banks do that knowing the customer might be too worried to shop around.”
“The big banks aren’t happy to admit but their balance sheets are under strain and they are having to knock back perfectly good customers.”
Net lending to UK businesses fell by £3.2billion in Q1 2010. Gross lending to businesses has fallen by 38.8 per cent in the same period, £43.3billion in Q1 2009 to just £26.5billion in Q1 2010.
The data obtained by Aldermore also reveals that the number of complaints made against all financial services providers by small businesses has rocketed by 43 per cent in the last 12 months from 3252 in 2008/09 to 4656 in 2009/10.
More than one third of UK small and medium sized businesses have been declined a bank loan in the past three months, new research from business software and service provider Sage UK today revealed.
The Sage UK Omnibus surveyed 1,500 small and medium sized enterprises (SMEs) in May 2010. It found that 34 per cent of UK SMEs who attempted to borrow money from a bank had their loan application declined. The research also highlighted that 58 per cent of the businesses questioned did not feel they were given an attractive rate for their loan.
Robin Moore, product manager of Sage’s Small Business Division said: “The decision on a loan can make or break a firm, so it is a concern that so many SMEs that evidently believe they need the funds are being declined. There is a range of best-practice measures that entrepreneurs can adopt to increase their chances of getting the green light on a loan and our advice would be to put yourself in your bank’s shoes and think about what they would need from you.
“Producing a detailed business plan is paramount. It might feel like information overload, but by conducting and presenting research that proves why you need the funding, explains how much finance you need and how are you going to pay it back, you can address any concerns the bank may have before they arise. It is equally important to develop and provide a contingency plan with the best and worst case scenarios, as this illustrates to the loan provider that both you and your business are prepared for any eventuality.”
Lloyds Banking Group has launched a new 2012 Charter, setting out a series of commitments to help small and medium sized businesses grow as the recovery gains momentum.
The new Charter covers business customers across both Lloyds TSB and Bank of Scotland and includes measures to help 300,000 new SMEs start up by 2012. It sets out a range of commitments to help stimulate demand and boost access to finance for SMEs; provide guidance to help businesses grow successfully; and clarify the terms on which the Group will lend to its customers.
The initiative is part of a strategy to build relationships with customers through the economic cycle – fulfilling a promise to support businesses during downturns and upturns. They are intended to help provide confidence and clarity to businesses as the economy starts to emerge from recession and they build on the promises made by the Group in this year’s Charter for small firms.
The measures in the new 2012 Charter will benefit all of the Group’s business customers, with a turnover up to £15 million.
The bank has promised to:
- Help encourage and support 300,000 new businesses to start up by 2012.
- Run a programme of 200 nationwide seminars every year for the next three years, to provide expert guidance and support for SMEs on starting up, employment, exporting, bidding for 2012 contracts, sustainability and finance.
- Provide online advice and support to business customers on issues including starting up, sustainability, procurement opportunities and finance.
- Meet every reasonable request for competitive commercially-priced finance (whether short-term or long-term) from viable business customers.
- Not change the availability of overdrafts during the period of a customer’s agreement, as long as their accounts are kept within agreed terms and limits.
- Support any viable business through temporary difficulties and into the recovery.
- The price of existing loans or renewed overdrafts will reflect the cost of funding. The margin Lloyds charges over our cost of funding will only increase where there has been a material increase in risk (subject to a minimum 1.5 per cent over the cost of its funds). The bank will be transparent about pricing
- Fees will be competitively priced. And arrangement fees on loans and overdrafts will not be greater than 1.5 per cent of the overall value of the facility.
John Maltby, managing director, commercial, Lloyds Banking Group, said: “Just as businesses needed support during the depths of the downturn, it is critical that we give them the right guidance and help them grow as the momentum of recovery starts to build.
“There is no doubt that business optimism is the foundation of any economic upturn and through the pledges we have set out today, to encourage enterprise, boost access to finance and provide clearer and fairer pricing, we hope to give businesses across the country the confidence they need to grow and lead the UK out of recession.”
Professor Russel Griggs, chairman, SME Council, Confederation of British Industry, said: “Understanding how credit is provided is fundamental to all SMEs. Anything that increases that transparency and understanding is welcome because SMEs can then work more closely with banks to change or further enhance their business and address any concerns. This new customer charter is a welcome step and will also hopefully encourage more dialogue between banks and SMEs as well as understanding of each others challenges and opportunities.”
They may be giving a pretty good impression of not wanting your custom, but if you have, or are starting a business, there will be plenty of banks offering you incentives to join them. Ideally, of course, a banking relationship should be for the long term – as your bank gets to know and understand more about your business it should be in a position to provide you with the services you need when you need them.
But that doesn’t mean you have to stay loyal – if you can get a better deal elsewhere, you should move on. Of course, it’s always worth negotiating with your existing provider first, but in a competitive market you need to be sure you are getting the most for your money.
Most banks have special deals and incentives for new customers. Naturally, these offers are aimed mainly at new businesses but in most cases an existing company will be welcomed with a similar deal. And while the start up incentives can prove to be valuable, remember that it’s in the long term that the true worth of your bank will be tested.
When looking at the bank accounts on offer, here are the factors you need to consider:
With the vast majority of business current accounts, your bank will levy transaction charges. So every time you pay in or out a cheque, or a direct debit, or cash, a fee will be charged. These fees vary dramatically – it’s generally less expensive to pay a bill electronically than by cheque, for example – and they also vary from bank to bank. So if you’re a mainly cash-based business, for example, then you’re going to need to choose the bank that has the lowest fees for handling cash.
With most banks, new account holders – whether new businesses or companies switching from a rival – will be given a period of free banking. This almost always is just the basic transaction costs – money coming in and money out – you’re not going to get international payments or interest-free overdrafts.
Bear in mind also that some accounts levy a monthly management charge as well. While the idea of having to pay for an account when you could go to a rival for nothing may seem strange, bear in mind that the charge will probably give you discounts on your daily banking costs, which could end up an even bigger saving.
Interest
It’s important here to work out what sort of customer you’re going to be. If you think you’ll mostly be in credit, you’re going to want to look for the bank that pays the best interest. If, on the other hand, you’re running your business from your overdraft, then it’s the lowest amount of interest you’ll pay that’s the most important. It’s unlikely that the same bank will offer both, so choose wisely.
Some banks offer a ‘sweep’ facility’ on current accounts. This means that if your balance rises above a certain figure at any point, the funds above that figure will automatically be swept into a separate deposit account that pays higher interest. Then, when money starts to dwindle, the bank will automatically again place funds back into the main account from the savings.
Overdraft facility
If you’re a start up you’re going to have to really prove the potential of your business before you are granted a respectable overdraft and even if you’re established questions will be asked. At the moment, banks are reining in their overdraft lending and you’ll have to be a very good customer to get a good deal.
There are signs, however, that some institutions are starting to open up once again, so it’s worth phoning around to see what’s on offer.
Access
Again, this will depend on the kind of banking you need. If you’re taking lots of cash or cheque payments, you’re going to need a branch close by where you can pay in your takings. On the other hand, if most of your income comes in the form of bank transfers, this is far less important. Virtually every bank now offers online banking and almost all offer a telephone service too, although their hours and service offerings vary. Banking online wherever possible is usually the cheapest option.
At a glance: Bank incentives
(Last updated 23 September 2009 and, where applicable, we have given the incentives applicable to the accounts with the lowest turnover requirement and where there is no initial monthly fee)
- Free day-to day banking for life
- Interest of six per cent paid on credit balances (limited)
Alliance & Leicester Business Banking
- Free banking for life up to £1m turnover
- UK call centre 24/7 telephone banking
- Free legal and tax advice
- Use the Post Office for payments
- Other business services such as insurance, loans and online advice
- 12 months free banking
- No overdraft arrangement fee for first 12 months
- Barclays (Business start up package)
- 12 months free banking
- Support outside office hours
- Access to seminars
- Free credit management tool
- Free data storage
- 18 months free banking
- 12 month fee-free business credit card
- £75 Google adwords voucher
- £50 discount on web build package
- Access to business resource directory
- 18 months free banking (six months for account switching)
- Free Sage Business software and support
- Free business guides
- Two years free banking
- Free online start-up course
- Free business planning software
- Free guides
Lloyds TSB pledged today to pass on, in full, any base rate cut announced this week, to all its small business customers with variable rate loans and overdrafts.
The pledge forms part of Lloyds TSB’s commitment to support small businesses through the downturn. It is one of six measures set out in the bank’s small business Charter, launched in December 2008.
John Maltby, managing director, Commercial, Lloyds TSB, says: “These are undeniably difficult times for small businesses and we want to do all we can to help offer them the support they need. Our pledge to pass on base rate cuts is just one of the promises we have made, to give small firms the best possible chance of steering a smooth course through these tough economic conditions.
“As well as the range of pledges in our Charter, we have also made clear our commitment to offering funding to small firms through the range of recently announced government initiatives. We are, for example, one of the most active lenders under the Enterprise Finance Guarantee.
The full list of pledges in Lloyds TSB’s Charter is:
- Future reductions in base rate in 2008 and 2009 will be passed on in full to Lloyds TSB Commercial’s customers
- Lloyds TSB will not change the price or availability of overdrafts during the period of a customer’s agreement (typically 12 months) as long as their accounts are maintained within agreed terms and limits
- Lloyds TSB will agree to any reasonable request for short term finance and do what we can to support any viable business through temporary difficulties.
- On renewal of an overdraft facility, Lloyds TSB will only change the limit or the price if the risks associated with that customer have changed materially
- Small business borrowing will not be switched from base rate to LIBOR
- Lloyds TSB will host a series of 120 business advice seminars across the UK to provide expert guidance and support for small firms and to strengthen local networks of business professionals.
