Banks shy away from SME lending

What are the banks up to? I keep asking entrepreneurs and experts everywhere I go. Are we seeing the first signs that the banks are back lending to SMEs on reasonable terms – or any terms at all?

Sue Prestney from MGI Boyd says she is not seeing anything at all to get excited about. Nevertheless there is slightly more activity which might be the first signs that things are changing for the better.

But Greg Hayes from Hayes Knight told me yesterday that he is not seeing any freeing up in lending decisions. Other entrepreneurs and SmartCompany readers report the same.

It’s not surprising. The banks are still in “de-risking” mode. The failure rate of SMEs is still rising and many SMEs are viewed by the banks as still high-risk. The lag affect isn’t helping. Traditionally SMEs feel the downturn first and are out first. Not this time. The embattled financial sector slowed the credit cycle which had a domino affect on many SMEs, leaving then struggling through the last bit of the global recession.

But then there are the smart entrepreneurs who have grown through the recession but not nearly as fast as they would have liked. Entrepreneurs seize opportunities six months ahead of everyone else. And they believe the time to act is now. But bankers, on the other hand, are six months behind the market, cautiously not wanting to move until they are sure there is less risk.

Hence, we are in the middle of a year long lag which is causing entrepreneurs enormous frustration. Those that have been putting plans on the backburner for the past few years are ready to act early. As the Smart50 told us, they want to do mergers, acquisitions, more R&D and buy more technology. They feel the time is perfect yet they are hampered by lack of funds.

And by the time the banks are ready to lend, the entrepreneurs will feel they have missed the boat. Many entrepreneurs will find their way around this. Wealthy individuals who cashed up before the stockmarket crashed are ready to invest. And entrepreneurs should also keep in mind that even if their bank says no, each bank has its own appetite for risk and preferred industry, size of business or type of company.

And you never know. Banks are increasingly understanding that the smart SME can be a great loyal, profitable and long-term bet. Let’s hope they act out of character this time around in this recession and meet the entrepreneurs earlier than usual.