Banks can't do it anymore!

There was a time when the sensible way for a respectable business to finance the ups and downs of their developing cash flow requirements was to trip down the bank with their figures and see a friendly Bank Manager who knew them, understood their business and had the discretion to assist them sensibly and proportionately with an overdraft.

There were rules about this. With a long climb up the specialist ladder behind him (mostly a him) he knew how to assess the risk and how to apply the brake when required through monitoring, understanding and sensible appreciation of what the customer was trying to do.

A few rogue managers responded over eagerly to the demands for sales of ancillary products and it was decided that standard risk grades calculated by computer should be applied and the old ways were dangerous and inconsistent in the new world of credit risk and global response. Cue the wholesale centralisation of, well, everything with just a few junior staff left to face the public.

Banks also faced a series of calamitous consequences of poor decision making and evolving attempts to keep ahead of the technological tide, resulting in demands from the Central Administrations to cover their exposure with assets. What does that mean? Banks can't have fluffy overdraft arrangements anymore, with their contingent and almost unmeasurable liabilities. So they pursued any business with an overdraft and if it was not a complete disastrous account, offered a loan to solve all their problems. That makes it look better on the Bank's Balance Sheet.  

According to latest research small business overdrafts are falling by £100m per month. The figures are down 42% from £21bn in April 2011. Consequently, over some years now the alternative finance markets have grown inexorably on the back of the evolving failure of main stream banks to provide services to small businesses. Half small business owners now consider alternatives for finance, and that market has grown double to £3.2bn in the last year. That is still a long way behind in total but is growing at an increasing rate. Speed of decision is quoted as well as a feeling that the Bank would say no anyway.

Half of small business owners say they will consider crowd funding, peer to peer lending and other available schemes for future needs. Considering that 65% of the UK GDP is small business and much more in some areas you might wonder why the Banks are being so difficult? The answer is that the change in their culture started 25 years ago and cannot now be undone. Even the retro marketeers cannot undo the damage done in the name of economic progress and the Banks will never have the fundamental role in the small business economy again that they once enjoyed.

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