This debate rages on, creating distractions and consuming negative energy. In reality:
- It is actually a relatively small percentage of SME’s (especially amongst the smallest businesses) that do want to borrow from their bank – that however still comes down to quite a big number.
- The best and most capable get their funding through to the finishing post without too many issues – these are the ones that the banks say are evidence that they approve most loan and overdraft requests.
- A number then struggle through to the finishing line – and perhaps get an offer with terms that they don’t want to accept (in which case the banks say they approved it, but the client chose not to take it up: evidence of weak demand). It is quite possible however that the terms were never going to be acceptable (note that it is rare that the banks actually just ‘decline’ a proposition).
- A large proportion however ‘fall by the wayside’ early on in the process – perhaps discouraged by the process, the attitude of the banker they are talking to or the demands on their time. They possibly also feel unsupported in the process and don’t know where to go for help (recent SMEFinanceMonitor results show this to be the case).
- Many more don’t even try to start their application – put off by past experience, ‘pub talk’ about banks, media gloom, poor advice from others etc
- Thus the banks at the ‘sharp end of the funnel’ never see all the numbers and, then, only when the business owners have a sound and well presented proposition. In their eyes the others seem to be ‘holding back’ from borrowing.
- At the big open end of the funnel are a huge number of businesses who may or may not have actually applied for borrowing – but have a negative view of the whole issue and are vocal about it.
I am told that the Treasury insiders have coined a good phrase for this: the expression is ‘Discouraged Demand’ – I agree this sums it up. The ‘holy grail’ that everyone is looking for is how to encourage it again.
The truth is that the whole thing is a massive, serious, real life, game of ‘Snakes and Ladders’… and it pays to know the rules.