Lay of the lending land

Banks have not done a lot to enhance their reputation in 2009 with the SME sector. In fact, for the first half of 2009 the only conversations banks wanted to have was about deposits.

But the news is both good and bad for 2010. For the last eight weeks of 2009, accountants report – at last – that the banks are beginning to play ball. The uplift in bank lending has begun. But before you get excited and reach for those expansion plans, a note of caution. The bankers are still being very picky.

The good news is the average SME with a decent business case now has some chance of finding funding.

And that will continue in 2010 as competition in the SME space to lend to good businesses heats up again as the four majors slug it out.

But there are two groups in the SME sector that are going to fare worse next year. The first are companies in trouble and go cap in hand to the bank. In 2010 the banks are going to be even more wary of distressed businesses as they seek to quietly offload the ones in intensive care. So the message again for businesses in 2010 is be very proactive about funding needs and not to wait until you are in deep trouble before seeking funding, as you are likely to be less successful – if that is humanly possible – than in 2009.

Businesses that are distressed and with a bank might also find they are not out of the danger zone next year. As attention swings away from the banks, it is likely they will continue to drop distressed customers to make way for better propositions.

The second group that will find no joy in 2010 are those who thrived in the low-doc era. These were companies that got funding through the last boom – and would never have got funding at any other time in recent banker memory.

Again they are going to have no luck next year, although I have heard stories of some very dodgy banks coming in from China and the Middle East looking to lend, which quite frankly you would not want to poke with a barge pole no matter how desperate you are.

But the bottom line for Smart businesses is that 2010 should prove a better year for funding. So about those expansion plans…