Scared SMEs provide untapped opportunity for brokers

Scared SMEs provide untapped opportunity for brokers




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The tabloids report that banks aren’t lending to SMEs, however, according to fresh reports, most SMEs are in fact reluctant to even attempt to secure funding.

A new set of data from the SME Finance Monitor has revealed that only 15 per cent of SMEs applied for new credit in the past 12 months. 
The survey, which is the most extensive analysis of SME finance in the UK ever undertaken, was commissioned by the British Bankers’ Association (BBA) and published by BDRC Continental.
Its findings, based on around 5,000 telephone interviews with UK businesses with up to £25 million turnover between March and June 2011, revealed that 15 per cent of SMEs were ‘unrequited’ – they had wanted to apply for funding over the past 12 months, but had not done so.
Stephen Johnson, New Business Director of Whiteaway Laidlaw Bank, explained: “SMEs can be nervous in approaching banks, because they fear that banks will question why they want to extend their overdraft and their funding.
“A lot of SMEs worry that if they approach banks for further funding, it may lead to them losing their existing facilities,” he explained.
Summer is not the time to risk losing these facilities, independent commercial company IGF has warned. The increase in staff holidays over summer months can lead to businesses feeling as though they need to turn to bank overdrafts or loans in order to cope.
 
Tracey Ewin, Managing Director of IGF, said: “The repercussions of the summer holidays could be a lot worse for many smaller firms if they come back after the summer break to find that there isn’t sufficient cash flow in the business to keep them going until new orders start coming through.”
 
An opportunity for brokers?
Whilst companies would ordinarily turn to their banks to help solve these cashflow problems, the current financial climate has discouraged many SMEs. Mr Johnson explained that this can be a good time for brokers to reach out. “If this sentiment of nervousness is there, it can actually create quite fertile territory for brokers to tap into, because customers have always looked to their relationship bank first.
“Clients are increasingly valuing an intermediary between them and the bank, and this is when they turn to the broker market, so this kind of atmosphere can actually be an opportunity.”
Rob Lankey, Managing Director of Commercial Mortgages at Aldemore, agreed. “Brokers know which lenders to turn to in order to give each client's application the best chance of success and how to submit proposals that will win favour with underwriters and credit committees,” he said.
 
“Brokers know which lenders are likely to give their clients' cases a sympathetic hearing and which will take a tougher line,” he continued.
 
Craig Scott, Director at Commercial 1 Limited explained that it is up to the intermediary to educate customers, as a lack of understanding may be why people aren’t approaching banks. “It often comes down to the knowledge and professionalism of the Master Brokers to know and understand the banks’ offerings.
 
“However, even armed with this information, decisions can sometimes be taken out of our control for a variety of different reasons, like business banking and other facilities being a prerequisite of the banks offerings to lend.
“Fortunately in the commercial mortgage market, a client’s credit history is not impaired by a bank’s decision not to lend. It does, however, allow for these customers’ commercial applications to be replaced by the Master Broker with the likes of Aldermore Bank, Whiteaway Laidlaw Bank & Lancashire Mortgage Corporation who are and have been a breath of fresh air and are always looking at product innovation as a genuine alternative to the High Street,” he said.
It appears that SMEs’ reluctance to approach banks is, in fact, an opportunity for brokers. Even companies with sub-optimal credit histories may be more able to secure funding than they think, and, in the current market, brokers are perfectly placed to advise and direct their clients to the most appropriate lender.
The survey’s findings:
  • - The following companies are less likely to be given the funding they require: companies with nine employees or less, companies less than ten years old, companies with a worse than average risk rating, and companies seeking new funds.
  • - Around 22 per cent of unrequited overdraft facilities and 31 per cent of unrequited loan applicants cited the current economic situation as a barrier against submitting an application for funding.
  • - Almost one in three unrequited overdraft applicants (34 per cent) and 54 per cent of would-be loan applicants told the survey that they felt discouraged, either by the bank or because they expected to be refused.
  • - Further explanations for failing to apply for funding were: the actual process of borrowing – particularly the cost and time involved, and the principle of borrowing, including SMEs’ fear of losing control of their business.
  • - Over the past year, 72 per cent of companies who applied for an overdraft had it approved, whilst 59 per cent of loan applicants were also successful.

By Miranda Atty

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