A leading accountant states that banks should charge small and medium businesses more for loans in order to release the lending deadlock. According to Sir Michael Snyder of Kingston Smith, banks shouldn’t be pressured to reduce the price of loans, because lending to small firms has its risks and the increased margin is necessary.
Snyder stated: “Banks are being pressured by the media and organisations like the Federation of Small Businesses to lend more money to SMEs and save more money in their capital reserves without charging more for this.” Sir Michael continued that loaning money to young and small businesses is quite risky, because many of these companies fail quickly.
The University of Surrey conducted a research commissioned by the Snyder’s firm to find out the attitude of small and medium businesses towards bank. The final results show that many SMEs are disappointed by the actions of banks. According to the University of Surrey’s report, banks fail to provide the required capital and know little about the needs of small and medium enterprises.
The survey involved 1,000 small and medium enterprises and the statistics show that 68% of the involved companies reinvested their own profits to finance the companies. Only 29% of the enterprises use bank loans for finance. The report states that the lack of external funds can greatly decrease the growth rate of the company.
“Reinvested funds are often restricted and they can’t fund successful company activities”. Snyder’s opinion is that banks need to improve their offers in order to take the market away from relation sheep managers. “The relationship between a bank manager and a customer was a strong one and the manager would always stick to the customer in bad times.
Nowadays, the only important thing is if the company’s business is appreciated by the bank. Meanwhile, relationship managers are very friendly in good times, but neglect their clients when they need help.”