Are banks lending money?

[Anglia Finance]

What are members views on the banks currently? Keen to get feedback on businesses that have approached banks directly for overdraft and loan funding, both good and bad.

If you have got funding was this at sensible rates and terms?

If declined were satisfctory reasons given?

Really keen to hear from businesses where cashflow is being constrained by banks and how the bank have handled the increased overdraft requests.

 

[joiner]

Been to the bank today for a overdraft(R.Bee.S), personal overdraft was at 18%APR, business overdraft was at 6% above BOE base rate+ £150 set up fee. Both were cleared by 'the computer' but turned down by me, nice to know they are there should I ever need them tho!
M.

 

[Merchant UK]

Been to the bank today for a overdraft(R.Bee.S), personal overdraft was at 18%APR, business overdraft was at 6% above BOE base rate+ £150 set up fee. Both were cleared by 'the computer' but turned down by me, nice to know they are there should I ever need them tho!
M.

I know the feeling......

Computer says No!!

 

[appyammer]

had a company that went into administration 2 years ago, started a new company got a bank account with nat west, been in credit up £90k at times,never been anywhere near overdrawn, tried to arrange an overdraft to cover cashflow due to increased orders, told nat west policy is they do not lend to phoenix companys, my accountant said he has had an account shut once they twigged it was a phoenix company,gave them 3 months shut the account and sent them a cheque for the balance

got a meeting with HSBC next wed, i'll keep you informed

 

[Paul Norman]

I think the picture is mixed. As a retail business, our funding needs peak at fresh season time, and we have found the bank helpful, albeit slow. So a positive story.

However, it is clear that this is not universal, and although the banks are lending money it is not always easy to access it.

 

What are members views on the banks currently? Keen to get feedback on businesses that have approached banks directly for overdraft and loan funding, both good and bad.

If you have got funding was this at sensible rates and terms?

If declined were satisfctory reasons given?

Really keen to hear from businesses where cashflow is being constrained by banks and how the bank have handled the increased overdraft requests.

Being in (broadly) the same sector as you, AngliaFinance my view is:

Yes, there is funding in various forms for viable, trading businessses moving forward.

The banks are naturally cautious having been -finally - burned by previouus sloppy policies and ridiclously cheap lending. From a customer perspective, the issue is one of expectations, not helped by the absurd Government (all parties) stance of 'forcing banks to lend' - which is realy just shovelling responsibility for the recession on to them.

'sensible rates & terms' are of course entirely subjective, though expectationns are led by history.

Some of the worst proposals we see include new start/loss-making or phoenix businesses where directors refuse to support with guarantees and a distressed business (by their own admission) where the owners expected a rate of 2 + base. From a lending persective I wouldn't classify either of these as 'sensible'. (Bold, ambitious, but never sensible).

Our problem now - whether we double dip or now, is the famous second wave, where businesses have struggles through 2 tough years are looking to grow but are producing poor figures and are ccash-strapped. From an underwritinng perspective this is a huge dillema as it is almost a complete ggamble to know who will suvive & who won't.

 

[Anglia Finance]

Good to see some positives as well as negatives.

Lending is tough at the minute and the banks do have mixed appetites, dealing with the right contacts is as key as choosing which bank as some managers are a lot better than others.

Phoenix business is always one that banks fear, certainly NatWest as much as most. Even if they retrospectively find out about it they will take action.

I do agree about the pricing. Many of my clients have been used to getting loans at 2/Base and cheaper and this is rarely available now with most lending at 3/Base and above. Lending is only available at these very cheap rates for a large loan for a very secure business or for a large invoice finance deal. These prices are a thing of the past and will not be returning for some time so if you are looking to borrow money realistic expectations are required.

 

[manaboutmoney]

I have banked with b***clays for 12 years. I have never used an overdraft. When I needed one last month, the bank said no, there referred me to a factoring company. its an expensive route, they take 4-5% of turnover, sounds a biy like legallised sopranos

 

I have banked with b***clays for 12 years. I have never used an overdraft. When I needed one last month, the bank said no, there referred me to a factoring company. its an expensive route, they take 4-5% of turnover, sounds a biy like legallised sopranos

Expensive compared to what? :| What is your ROI on the money? what are your alternatives?
The reason the banks refer you to their various divisions is that they are bound under innternational banking conventions (Basel) to lend money with appropriate security. This was (ironically) designed to ensure that banks remain properly capitalised.

 

[Anglia Finance]

I understand your point manaboutmoney and indeed this is what the majority of my clients say. The banks are very reluctant to lend for cashflow purposes any more and will attempt to move you across into invoice financing. This will only happen more and more in the future.

As long as you get the right agreement and negotiate hard with the small terms as well as the headline price this route doesn't have to be the route of all evil. Without knowing anything about your business I would say that 5% is very much on the high side and would rarely see a deal this expensive anymore. Make sure you look at personal guarantees, termination fees, trust account fees, minimum monthly fees, collection targets or collection estimates. Happy to help also.

 

[iridessa]

In property it has been impossible to borrow over the last 2 years.....and banks have been trying to re-structure our finance onto better rates for them....we have held out and over the last couple of months the whole situation seems to have improved...the bank is now lending again and on quite favourable terms. Although they have wasted us 2 yrs of having to survive on our cash flow...which has held projects up.

 

[tree568]

In property it has been impossible to borrow over the last 2 years.....and banks have been trying to re-structure our finance onto better rates for them....we have held out and over the last couple of months the whole situation seems to have improved...the bank is now lending again and on quite favourable terms. Although they have wasted us 2 yrs of having to survive on our cash flow...which has held projects up.

That's been our experience, that the banks are now lending again. Though, having said that, our recent borrowing was for business expansion rather than to alleviate tight cash flow.

 

[Alan R Price]

My experience is that most of the banks are happy to lend but they have seriously tightened up their criteria: they will want personal guarantees and/or debenture security along with a robust business plan and forecasts which stand up to scrutiny.

They are definitely moving more toward security-based lending such as factoring/invoice discounting and debentures. I don't think this should be a problem to borrowers however: if a director has sufficient confidence in his business to ask a bank to lend it a significant amount, he should have sufficient confidence in it to give the bank security; although I do believe that personal guarantees should be resisted wherever possible.

Banks are not pawn shops: their lending is based on making a commercial assessment of the risk and lending on the basis of a high degree of certainty that the borrowing will be repaid in accordance with the agreed terms. Realising security as a way of getting repaid is very expensive, time-consuming, disruptive and potentially damaging to all concerned.

There are also plenty of "white knights" and private investors around willing to invest in SMEs. They do however consider this high-risk and therefore look (not unreasonably) for a higher return. To counterbalance this they usually bring more to the table than just money and often have considerable expertise and experience which they can use to help a business grow.

 

[Anglia Finance]

My experience is that most of the banks are happy to lend but they have seriously tightened up their criteria: they will want personal guarantees and/or debenture security along with a robust business plan and forecasts which stand up to scrutiny.

They are definitely moving more toward security-based lending such as factoring/invoice discounting and debentures. I don't think this should be a problem to borrowers however: if a director has sufficient confidence in his business to ask a bank to lend it a significant amount, he should have sufficient confidence in it to give the bank security; although I do believe that personal guarantees should be resisted wherever possible.

Banks are not pawn shops: their lending is based on making a commercial assessment of the risk and lending on the basis of a high degree of certainty that the borrowing will be repaid in accordance with the agreed terms. Realising security as a way of getting repaid is very expensive, time-consuming, disruptive and potentially damaging to all concerned.

There are also plenty of "white knights" and private investors around willing to invest in SMEs. They do however consider this high-risk and therefore look (not unreasonably) for a higher return. To counterbalance this they usually bring more to the table than just money and often have considerable expertise and experience which they can use to help a business grow.

Alan, thankyou for this post. I completely agree with your sentiments, the Banks certainly turned into pawn shops and the key criteria was security as opposed management team and affordability hence we find ourselves in the current situation when security values fell and affordability was not there.

Like it or hate it invoice discounting / factoring will grow considerably over the next decade. The banks can no longer value their debentures in the way they used to which means cashflow based lending will need to be structured. I do see invoice finance becoming less rigid to accomodate for this and am already seeing incredibly cheap pricing given the current economic climate. The key to invoice finance is getting it right from the start, headline price is important but more important is the many areas businesses don't negotiate, i.e. concentration limits, personal guarantees, termination clauses etc. Use someone that knows what they are doing and this type of finance should work.

The key to getting lending agreed is the way in which you approach the bank. Robust financials and projections are key along with showing how the management team can make the venture/deal a success.

 

[Ian J]

Use someone that knows what they are doing and this type of finance should work.

I'm not sure what this has to do with bank lending but as a specialist factoring and invoice discounting broker I obviously have to agree with your sentiments

 

[BusinessM8]

I had a very personable Business Bank Manager from Santander come and give us a presentation in our boardroom last Thursday. It seems that not only are they the fourth largest bank globally but they will also lend up to £26k unsecured and they offer "FREE Business Banking for Life" - and have done so for the last 12 years or so. They have also just bought RBS's Business Banking - that'll mean that NatWest business accounts may just change!

We also have every reason to believe that they are going to 'support' one of our new initiatives - 'Start-up Business Support' through one of our trading divisions - details will be posted on our website in due course.

 

[Anglia Finance]

I'm not sure what this has to do with bank lending but as a specialist factoring and invoice discounting broker I obviously have to agree with your sentiments

As with most posts in forums things do go off topic. I'm sure you'll agree it is important to match the right client with the right lender though to ensure they are lending to the levels expected as opposed reducing availablility.

In traditional lending I think this is absolutely key, a broker should not just add value to the application but also contacts within the banks. The same proposition can be looked at by the same lender but different managers/departments and have two vastly different responses.

 

[Anglia Finance]

I had a very personable Business Bank Manager from Santander come and give us a presentation in our boardroom last Thursday. It seems that not only are they the fourth largest bank globally but they will also lend up to £26k unsecured and they offer "FREE Business Banking for Life" - and have done so for the last 12 years or so. They have also just bought RBS's Business Banking - that'll mean that NatWest business accounts may just change!

We also have every reason to believe that they are going to 'support' one of our new initiatives - 'Start-up Business Support' through one of our trading divisions - details will be posted on our website in due course.

Most banks will take a view on lending unsecured at this figure and below dependent on the applicant, Santander do definitley have an appetite to lend though. If a bank is asking for security for loans of £25K and below where there is no other borrowing with them it's definitely worth shopping around.

Under competition rules and the tax payers funds going into it, RBS Group (NatWest) were made to sell off the RBS branded branches in England. Whilst NatWest may offer an electronic free tariff I doubt very much they will do free banking for their clients. Their proposition and the other traditional high street banks approach is very different to that of Santander, I would love to be proven wrong on this though!

 

[TBTB]

My bank's business manager told me that she had arranged a business loan similar to the one I was seeking just last week at a rate of 19.95%. As soon as I could I checked the current LIBOR which was 0.78%.

So, please correct me if I am wrong, Barclays borrow from the market at 0.78%, lend at 19.95% and make a profit in excess of 2,450%!!!

I'm in the wrong business!

 

My bank's business manager told me that she had arranged a business loan similar to the one I was seeking just last week at a rate of 19.95%. As soon as I could I checked the current LIBOR which was 0.78%.

So, please correct me if I am wrong, Barclays borrow from the market at 0.78%, lend at 19.95% and make a profit in excess of 2,450%!!!

I'm in the wrong business!

Barclays are currently offering in excess of 3% for deposit monies which is the true cost of money to them. LIBOR is dependent on banks lending to each other, which currently they don't.

Of course, the true cost of lending is bad debt which, I can asssure you will be rising disproportionately this year.

Of course, the other factor is simple supply and demand - Barclays have a limited supply of money to lend, so are controlling demand by being selective and by their pricing.

Put simply - if you can do it better, the opportunity is out there..

 

[Connexions]

Santander, bought out a credit card company (which i have a credit card with) and have just announced they are upping the interest by 6%pa.

So their tactic, buy out the competition then increase charges. Nice.

 

[Alan R Price]

We held literally dozens of client accounts with Santander when it was Abbey. Everything went smoothly. We were happy to let them look after a total of seven figures on account of our insolvency cases. Then Santander took over.

They were so incompetent (if it could go wrong, it did) it ended up with me emailing their chief executive as a result of which I got an email from one of their customer relations directors, apologising and saying everything would be all right . . . Did things improve? . . . If I just say we have now closed our last account and will not be opening any more you'll get the picture.

 

[tree568]

Ah, the joys of rate jacking. I wish I owned Santander.... the first time this happened to us we kept the account but paid off the balance, but were so mad about it, because it had been jacked three times over a period of around 8 months, that we ended up closing the card anyway.

The second time, we refused the rate increase and closed the account but had to arrange other funds to pay it out, so doubly annoying. I notice the Duggars (Arkansas family, with 19 children) don't have any debt at all. And a nice looking house to boot. Maybe that's a solution - have zillions of chldren and pay off the debts with the CTC....

 

[bobedwards10]

The cheapest way to solve your cash flow issue is to work on reducing your debtors.

 

[malcolmpiper]

Alan, thankyou for this post. I completely agree with your sentiments, the Banks certainly turned into pawn shops and the key criteria was security as opposed management team and affordability hence we find ourselves in the current situation when security values fell and affordability was not there.

Like it or hate it invoice discounting / factoring will grow considerably over the next decade. The banks can no longer value their debentures in the way they used to which means cashflow based lending will need to be structured. I do see invoice finance becoming less rigid to accomodate for this and am already seeing incredibly cheap pricing given the current economic climate. The key to invoice finance is getting it right from the start, headline price is important but more important is the many areas businesses don't negotiate, i.e. concentration limits, personal guarantees, termination clauses etc. Use someone that knows what they are doing and this type of finance should work.

The key to getting lending agreed is the way in which you approach the bank. Robust financials and projections are key along with showing how the management team can make the venture/deal a success.

I couldn't agree more with your last paragraph. We see many clients seeking finance to bolster cash flow who are fundamentally good solid businesses and pass underwriting, but their presentation is poor. We spend a lot of time understanding the company and pulling their financials together.

If only they were able to present their management accounts and paint a detailed picture, many would find funding from the bank a much more straight forward proposition.

In our experience banks are lending, in the right circumstances, and the companies who demonstrate they know about their financials and have clear projections are the ones winning financial support.

 

[TBTB]

...In our experience banks are lending, in the right circumstances...

But at what cost? Are the rates that are charged on a 'one size fits all' basis (19.5% !!!) or are banks' lending teams actually able to tailor options to suit their clients needs and/or the perception of the quality of the business and its management?

 

[malcolmpiper]

I've seen some variation in rates for traditional loans, but admit overdraft rates can be high.

It's also much tougher for young companies to attract lower rates and it's very worth while using a business consultant or broker to get the best advice.

 

But at what cost? Are the rates that are charged on a 'one size fits all' basis (19.5% !!!) or are banks' lending teams actually able to tailor options to suit their clients needs and/or the perception of the quality of the business and its management?

It isn't a one size fits all situation; you can still get rates down to about 3 + base for a good, string, sizeable propositionn.

What the banks forgot on their race for market share is the concept of risk reward, which they are now relearing in a rather clumsy way.

Overdraft was never supposed to be a core borrowing tool, but both banks and their customers came to see it as such. WEith the regulations now imposed on banks (regarding cash reserves and security) they have no choicce but to look at the correct lending alternatives and to restore the overdraft to where it should be - a 'rainy day' fund.

This is where customers can benefit from independent advice & an open mind.

 

[TheEngineer]

Ask for a small overdraft last year from LTSB - £10K.

Wanted a directors guarantee - which we gave.

Base + 3.5% with £150 setup fee.

Done to aid cashflow with a customer who are slowish in paying but who started to do a lot more business with us.

Only used it twice so far in 12 months!

 

[E Bickley]

From London to Penzance....

Lloyds - open and doing good deals.

Handelsbanken - open and doing good deals.

Barclays - open, slow, very selective.

RBS Group - say they are open, but actually shut.

HSBC - smashing people at the moment by recovering their cash through removing overdrafts. Perhaps this just in the south west?

Santander - open, great sales people, right hand doesn't know what the left hand is doing though.

Typical rates we are securing are at between 1.5% - 8% over base (Libor and standard depending on the bank and deal) So, one hell of a spread, and the 8% loans were to strong covenant strength borrowers as well.

Private loans - we're seeing more and more companies go down this route. A perception that it is easier, faster and cheaper being the drivers. My own view is that until we are able to monitor results properly from this form of lending we won't ever know the true average lot size and volume of transactions.

 

[Anglia Finance]

From London to Penzance....

Lloyds - open and doing good deals.

Handelsbanken - open and doing good deals.

Barclays - open, slow, very selective.

RBS Group - say they are open, but actually shut.

HSBC - smashing people at the moment by recovering their cash through removing overdrafts. Perhaps this just in the south west?

Santander - open, great sales people, right hand doesn't know what the left hand is doing though.

Typical rates we are securing are at between 1.5% - 8% over base (Libor and standard depending on the bank and deal) So, one hell of a spread, and the 8% loans were to strong covenant strength borrowers as well.

Private loans - we're seeing more and more companies go down this route. A perception that it is easier, faster and cheaper being the drivers. My own view is that until we are able to monitor results properly from this form of lending we won't ever know the true average lot size and volume of transactions.

I'd say that's a pretty accurate reflection in our experience.