Banks are beginning to post healthy profits again, but SMEs say they are still being hit hard by lending terms. Here we speak to entrepreneurs, analysts and bankers to find out the reality of credit conditions.

Jane Walton, owner of an eponymous antique shop, renewed her overdraft in February only to see an increase in her charges. ‘I can only assume they did this to earn more money, as I’ve been told by them that I’m a low risk. We’re no better off now than we were six months ago. The banks could help us – mine is solvent and has been affected much less than others.

‘I feel I’m at their mercy; had they decided to put it up by ten per cent I would still have had to take it. I rely massively on my overdraft as my money is tied up in stock,’ she says.

According to research from the Forum of Private Business, the average overdraft lending rate is now 6.6 per cent – far above the 0.5 per cent Bank of England base rate.

In a changed climate with fewer lending opportunities (many foreign banks have now retreated to their home countries in order to lick their wounds), the response appears to be a cranking up of interest charges.

Collateral damage

‘Every year for the past ten years we’ve opened a new site. There’s just no way we can do that this year,’ laments Cheryl Hadland, the founder of Reside Care Homes.

In Hadland’s view, the banks are continuing to prioritise putting as much cash as possible on their balance sheets rather than supporting growing businesses. ‘We’re waiting until they can lend to us on more favourable terms. At the moment, we just don’t have the security to put down against the loans we are after.

‘I definitely don’t feel we are seeing any more bank lending; it still feels like they are grabbing everything they can. My bank manager has said: “I know you’re a good company, but don’t even bother asking for finance now,”’ she says.

Hadland’s story is by no means unique. The Bank of England recently reported that UK firms are continuing to be deprived of credit, with bank lending to companies outside the financial sector dropping 5.4 per cent in April – the steepest decline in nine years.

Personal guarantees against a loan, although nothing new, are now standard procedure for entrepreneurs if finance is going to be made available. Steve Cooper, managing director of Barclays Local, argues that in this risk-averse climate it makes sense in many instances to ask for additional security and insurance: ‘We believe a personal guarantee is often necessary as the likelihood of a business deferring a loan repayment reduces by 40 per cent,’ he says.

Supply and demand

Over the past couple of months, there has been a discernable improvement among certain banks as it has become apparent that the world isn’t going to end. The terms of borrowing may be more onerous but that shouldn’t be confused with believing that no money is available.

Barclays’ Cooper explains: ‘It’s true that people are finding it harder to obtain...

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