Banks are still open for business, just don’t expect it to be easy

The Government has already bailed the UK banking system out to the tune of £37 billion and is now poised to inject hundreds of billions more in an attempt to get banks lending again so it's no surprise that region's SMEs have all but given up hope of getting the credit they need from local banks.

But, says Mark Neath, Corporate Finance specialist at West Country accountants and financial advisers Old Mill, it is not all doom and gloom, and there are still deals to be had.

“As a corporate finance specialist, one of the questions I am asked most in the current climate is: are the banks still lending?” says Mr Neath, “and the answer is yes and no.”

“Banks in the West Country are still looking to lend - it is one of the ways they make money – but they are of course being a lot stricter on who they lend to.”

“While bank managers have always had to present a good case to obtain approval from the powers that be, the current financial turmoil means this case has to be even stronger than ever.”

Mr Neath explained for a business stand out as a good investment, local banks are looking at three key areas; management, sector and defensibility.

“Although the strength of management, the safety of the sector and resilience have always been key considerations, what has changed is the extent to which resilience is being challenged,” he explains.

“Banks are now asking for ‘what-if’ forecasts assuming a 25 per cent drop in turnover and for management to explain their cost cutting plans in such an eventuality.”

Mr Neath says that sector has also become an even more significant consideration, with some areas of business deemed no-go areas for banks and others looking increasingly attractive due to their lack of exposure to the wider economy.

“These ‘no-go’ areas vary between the banks, but are the ones particularly exposed to the recession, for example commercial property and the retail motor trade, whereas businesses like residential care homes are largely unaffected by recession so remain attractive to lenders.

Mr Neath says that unlike in the good times, when the money was there to be lent, it can now be hard for a simple lending proposal to make the cut, but says that there are things that can be done to make a proposition more attractive.

“Banks are looking to make the best return they can on scarce capital, so if your proposition includes other products purchased from the bank, for example foreign currency or interest rate hedging, you may have a better chance of convincing the bank to commit capital to your business.” says Mr Neath.

“If you have an investment to make or a deal to do, there are still plenty of opportunities out there - don’t be deterred by the doomsayers in the press. It can still be done; just don’t expect it to be easy.”