Eight years after the credit crunch, and despite billions of pounds being pumped into the banking system to encourage lending for the nation’s smaller businesses, firms are still struggling for finance.
New research found most small and medium-sized businesses (SMEs) in the West Midlands said bank advice wasn’t meeting their needs, two out of five had experienced barriers in accessing finance and one in seven had been turned down for finance when they looked to grow.
At a time when the combined turnover of the nation’s SMEs makes up almost half of all UK private sector turnover, around £1.8 trillion a year – there is growing concern that failure to fund their growth poses a serious risk for the economy.
One of the firms on the wrong end of this funding crisis is Bromford Iron & Steel in West Bromwich.
Struggling for finance after its lender decided to walk away, the company wants to grow, enter new markets and find new customers. But to do that it needs additional funding.
Operations director Andrew Rich explained: “It’s been going on for about a year, and has put everyone here under a lot of strain. It’s a lot of pressure. Competition is fierce at the moment. We’ve got the skills and got the business, but we just need a bit of help with investment.”
Bromford currently employs just over 40 people, hot rolling metal billets at 1,250C to produce sections and shapes such as spiral blades for lawn mowers, horse shoes and a host of other parts for a wide range of customers.
Formerly part of the Hill & Smith group Bromford was bought by the privately owned manufacturing group OSSL two years ago. But its roots in the Black Country go back hundreds of years.
“We are based on Bromford Lane and I’m not sure which came first - the road or the company,” said Andrew. “But blacksmiths at the Bromford Mill were forging sword blades from local iron and coal back in 1610.
“OSSL want to put 80 per cent of profits back into the business, and I joined two years ago for the same reason, to help preserve Black Country manufacturing and Black Country jobs.
“Hot rolling is a very traditional process, although we new use modern computer-controlled equipment. We want more equipment so we can grow, and we want to invest in marketing so we can find even more customers. About 60 per cent of what we make goes into Europe and we want more high value customers. We provide a very tailored service, because we can handle orders to roll as little as a couple of tons of steel, while the bigger mills need minimum orders of at least 50 tons.
“But about a year ago our bank decided they wanted to invest in other areas rather than SMEs. There was nothing wrong with the company, we’ve just been a victim of a bank’s decision to change its focus. We’ve been looking for an alternative for about 12 months, and talked to a number of lenders without any success. They don’t really appear to understand manufacturing and we couldn’t afford the amount they wanted to charge us to borrow money.
“They are all very averse to taking any kind of risk, there’s no real appetite to lend to firms like us.
“It has been a very long and frustrating process, but we are are talking to someone now which we hope will finally result in us securing some investment funding.”
Bromford’s experience is mirrored in the new report from finance group Close Brothers. Only 28% SMEs in the West Midlands say banks’ advice always meets their needs, highlighting a failure of many lenders to cater for SMEs’ individual circumstances.
Close Brothers surveyed over 1,000 SMEs owners about the changing needs throughout their growth stages, showing that the individual requirements of SMEs are not being met effectively.
SMEs, who account for 99.9% of all private sector businesses, play a vital role in the UK’s economy, and Many feel they do not receive a tailored service from their lender when it comes to their stage of development, and their sector. Two fifths (39%) of West Midland’s SMEs have experienced barriers in accessing finance, with a further one in seven (13%) being turned down completely when they are looking to grow.
Of the West Midland’s SMEs who experienced barriers in accessing finance, just under a fifth (17%) stated that lenders didn’t understand their specific needs, with a further quarter (25%) saying their lender did not understand their sector at all. The report additionally found that generalist lenders, who account for 90% of lending to SMEs, often cannot meet these varied requirements of SMEs for funding at differing stages of their growth. Close Brothers says this poses a ‘significant challenge’ for the SME sector, especially as a large number of SMEs (38%) only turn to high street banks for information and advice about the most suitable types of finance for their business.
In addition to the lack of guidance received by SMEs as they grow, there is a clear issue with long-term business planning, with only 23% of SMEs in the West Midlands plan their needs for finance more than a year in advance, while 64% only plan up to a year in advance. 8% of SMEs do not engage in planning at all.
Adrian Sainsbury, chief executive officer at Close Brothers Commercial Division said: “Smaller businesses do not have the same access to and experience of the myriad of options that are available to them as larger companies.
“It’s clear that the traditional sources of advice for many are no longer sufficient. Many do not feel their banks are taking into account their sector and specific circumstances, meaning they are not receiving the level of support they need to secure the right products and funding for the future.
“Given the importance of SMEs to the economy, it is vital that these companies are properly understood by the mainstream funders they turn to for guidance, whether knowing the specific financial needs of that business in a particular sector, or identifying the type of lending that will best suit their business at any given time. A specialist, rather than a generalist, approach is clearly beneficial.”Subscribe to our Newsletter