When Frank Stevens asked Barclays bank for a £500,000 loan to help pay for a
new showroom at his boat business in Weymouth, the bank said yes — on
condition that he first deposited the same amount, £500,000, at the bank.
Stevens — whose firm, Blue Water Horizons, is just yards from where the 2012
Olympics sailing events will take place and so hopes to benefit from the
surge in visitors — was astounded by the bank’s response. He said: “I
couldn’t believe it when they told me. If I had the money in the first place
I wouldn’t need to go to the bank to borrow it.”
His experience is by no means unique. Happily for Stevens, the money he needed
was to expand his already thriving business. For many other small firms,
though, the money they seek will spell the difference between survival and
disaster.
When the government unveiled its Enterprise Finance Guarantee (EFG) scheme a
few months ago to help small firms that were facing temporary cash-flow
problems, there were loud cheers from Britain’s small-business community.
With delayed payments from customers who owed money adding to the problems
they were already experiencing in the face of declining sales, the promise
of an instant injection of cash to tide them over a difficult patch was
extremely appealing. With the government pledging to back £1.3 billion in
loans and overdrafts with a 75% guarantee so as to encourage banks to lend,
they thought they could at last begin to sleep more easily.
Sadly it hasn’t quite turned out that way. Britain’s high-street banks are
still refusing to lend to small businesses and the consequences are proving
catastrophic. About 120 small firms are going bust every day and thousands
more are teetering on the brink of bankruptcy.
As a result 36,000 small firms are expected to close down this year, according
to BDO Stoy Hayward, the business adviser, causing the loss of 150,000 jobs.
And a large part of the blame, claim small firms, lies squarely with the
banks, which are putting up every kind of obstacle to prevent small firms
getting the financial help that they need.
Over the past few weeks The Sunday Times has received dozens of e-mails from
small-business owners who have been refused a loan under the EFG scheme or
who are struggling with the hurdles involved in accessing it. And this is
just the tip of the iceberg.
Steve Hay at the accountancy firm 2020 said: “Every one of my clients who has
applied for EFG has been knocked back. I haven’t heard of anybody getting a
loan under this scheme. They get to a first meeting with the bank and that
is as far as it gets. The banks have no interest in lending money.”
Indeed, anecdotal evidence suggests that many of the loans that are being made
under the EFG scheme are not actually new funding at all, but merely a
transfer of an existing loan or overdraft facility with a small top-up into
the scheme.
The banks themselves are certainly not going out of their way to be helpful.
Small businesses applying for funding say that getting a response of any
kind can take several weeks, with letters going unanswered and their phone
calls not returned.
David Hallett is managing director of Carrot Fitness, a health and fitness
club in Stourbridge, West Midlands. He said: “We thought that the
introduction of a new scheme would help, but it hasn’t made a blind bit of
difference. The bank doesn’t return our calls and their attitude on the
telephone is not at all helpful.”
