Why Britain’s business has fallen out of love with its bank

The chief grumble was the banks’ reluctance to offer finance. Nearly forty per cent of businesses said their bank had rejected a request for a loan or an overdraft. A similar proportion had seen their existing overdraft facility either withdrawn or reduced.

Many of those who already had a business loan or an overdraft now pay more for the privilege too – with 57 per cent of respondents saying they have been hit by higher interest rates and / or tougher terms and conditions.

Despite the litany of frustrations, nearly sixty per cent have not changed bank for more than 10 years – either through loyalty or inertia. And an incredible 57 per cent still rated their relationship with their bank as “tolerable” or better.

Louise Beaumont, Co-founder of Platform Black, who commissioned the research, commented: “Clearly things aren’t right between many British businesses and their banks. For most firms, their relationship with their bank is the single most important partnership they will ever have.

“But for thousands of small firms, even successful and vibrant ones, the spark has gone.

“Too many are trapped in a loveless relationship with their bank – unhappy and frustrated, but unaware of what the alternatives might be. The fact that well over half haven’t changed banks for a decade hints at how cowed some have become.

“For 57 per cent to rate their relationship with their bank as ‘tolerable’ or better shows either extraordinary stoicism on the part of business leaders, or more likely, that they are just so used to poor treatment that they’ve become numb to it all.”

Bank relationship “limited”
A classic example is the Midlands-based electrical contractors Alpha Electrical. MD Tim Harlock said: “We’ve banked with HSBC since we started a decade ago, but our relationship with them is limited. They’ve reduced our overdraft facility to a tenth of what it was. We’ve stuck with them, even though they can’t give us the extra funding we’d like. That’s why we raise working capital through Platform Black instead.”

However the survey also found that business owners’ approaches to alternative sources of finance was fragmented. More than a quarter had considered selling equity in their business, while one in six (17%) had explored invoice finance – selling their unpaid invoices to free up cashflow.

Nearly sixty five per cent had considered using more precarious sources – either their personal savings or loans from friends and family. Nearly one in four had not considered alternative sources of finance at all.

Dr Beaumont concludes: “As the legions of small firms who’ve had their overdrafts reduced or withdrawn – or been refused a bank loan – know all too well, most mainstream banks now frequently cannot, or will not, lend to business.

“The conventional credit pipeline is badly blocked, and any firm without significant cash reserves, or an owner willing to offer their own home as a guarantee, is highly unlikely to be offered bank finance.

“Platform Black allows businesses to auction their unpaid invoices as a way to generate working capital. Our strong growth – from a standing start to £3 million advanced every month in less than a year– is testament to business’s expanding appetite for alternative finance.

“When the state-backed Business Bank is up and running next year, the market in alternative finance will receive a further boost. But as well as helping to get vital finance flowing again, the Bank must also take the lead in reminding business owners that they need not rely solely on their high-street bank for finance.

“Our research found that nearly a quarter of businesses had not considered any non-bank source of finance. But those who have fallen out of love with their bank don’t have to stay chained to it forever. Alternative finance has truly come of age and a kaleidoscope of other opportunities is now available.”

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