Birmingham Post Article - August 2010

In recent days, Chancellor George Osborne has called on the banks to lend more to small businesses, as has Bank of England governor Mervyn King, who heavily criticised the banks for their reluctance to lend. Lucas Markou, a partner in Solihull business advisers and accountants Jerroms LLP, has given his backing to these views.

“Though banks are now taking trading history into account, which is to be welcomed, there is further to go” said Mr Markou. “We understand that banks need to be careful when lending, particularly unsecured. However they should not be insisting on more security than is actually required, which is what we are seeing in some cases.”

Many advisers say that since the financial crisis, banks have virtually sidelined unsecured lending, restricting themselves to secured lending, such as mortgage-style loans, or invoice discounting and its variations. Mr Markou says there are few viable alternatives to these options. “Some businesses have successfully sought the deferral of their tax liabilities through application to the HMRC’s Business Payment Support Service” he said.

“The problem is that the second time businesses ask for this deferral, it is getting more difficult to get a positive response". An alternative they have is to use the Enterprise Finance Guarantee Scheme. Government support can result in the bank lending cash to businesses for applications that would otherwise not meet their lending criteria.

“But there are a lot of hoops to go Through and the interest charges can be high.”

Mr Markou explains that many businesses are simply trying to ‘square the circle’ by delaying payments to creditors but he highlights the problems that this creates for suppliers, with a knock on effect.

He said: “Without calling for a return to the days of irresponsible lending prior to the financial crisis, I would like to see further progress in turning the policy statements on lending to small businesses into even more action at the regional level.
“While respecting the need for a cautious approach by banks in these challenging times." “I hope we can continue to edge back to the point where banks place more reliance on the business’s history and commercial prospects and the track record of the management team.”

Meanwhile, Mr Markou says that it is always worth looking at any property within the business that is not currently used as security. “It is much better to use property within the business as security for lending rather than for the owners to take out mortgages outside the business.

“Interest on mortgage or secured loans taken out by the business has the advantage of the associated interest being tax deductible. “On a more general note, there are always benefits in taking a strategic look at the financing requirements of businesses and planning a way forward rather than letting events push the business to a financing problem.

“I urge businesses to take a step back and carry out such a review” he added.