Small firms back good practice code for banks

Mar 12, 2009

They have backed the launch of a national code of good practice for banks to follow and to support more lending to small firms.

 
The Federation of Small Businesses has unveiled its seven Principles of Small Business Banking for banks to follow when considering loan and overdraft applications as a way to improve the relationship between small businesses and their banks and restore lending to viable small firms.
 
FSB North Bucks branch chairman Allan Banks (pictured) said: “While there have been efforts to restore lending to small businesses and some enterprises are being granted finance, the FSB is still hearing negative reports about banks holding back funds from viable small businesses.
 
 “I would like to see our local business bankers take on the challenge of making Milton Keynes the exception to the national position and work closely with their small business customers and help both them and Milton Keynes get through these difficult times well prepared to thrive and prosper.”
 
The FSB Principles of Small Business Banking are:
  • Fix costs on loans and overdrafts for the whole of 2009 if repayments and limits are not broken;
  • Pass on base rate cuts in full to small business customers, and don’t change them to the London Interbank Offered Rate;
  • Make it possible for customers to switch accounts within five working days as written in the Statement of Principles;
  • All banks should take part in the European Investment Bank lending programme, along with the government’s Enterprise Finance Guarantee;
  • Consider all reasonable requests for finance from a small business and produce a letter of explanation if refused;
  • All documentation and contracts must be clear, fair and not misleading.
  • Financial penalties for the banks must apply where appropriate, if any of the above is not adhered to.
 
A poll of more than 500 FSB members found that small businesses want to have a personal relationship with their bank when obtaining finance. A total 54% said they choose to communicate in person with their bank rather than via letter, online or over the phone while 86% said they believed decisions on lending should be made by a local branch rather than centrally.
 
Most were dissatisfied with their banks, although they still rely heavily on them, according to the poll. Almost two thirds of respondents said they have already or are considering switching banks. Nearly 70% still view the institutions as the best place to access credit.
 
Mr Banks said: “Branch managers still seem unaware or unwilling to promote funds such as the Enterprise Finance Guarantee. Businesses are complaining of unrealistic terms on finance applications and that they are not able to speak directly to those making decisions on their credit issues.
 
“With 120 businesses going bust a day, business owners do not have the time to wait for letters or phone call centres to enquire about finance. Banks must train their staff to have knowledge of our sector and be on hand to deal with small business customers on a day-to day basis.
 
"We hope these principles we are suggesting will compel banks to lend fairly and help businesses get vital credit more quickly to help kick start the economy as soon as possible.”
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