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When the banks say no ...
Comedian Bob Hope once quipped: “A bank is a place that will lend you money if you can prove that you don’t need it.”
That joke won’t sound so funny to entrepreneurs trying to borrow from British banks at the moment.
According to The Federation of Small Businesses, 40 per cent of its members have been refused credit in the past three months.
This is backed by Bank of England figures, which show nett lending to small and medium-size businesses by UK financial institutions fell by £6bn in the past 12 months.
Little wonder that entrepreneurs are forced to look elsewhere for capital.
After being turned down by the Witney branch of NatWest, father-of-three James Wymer borrowed £4,500 from social enterprise charity the Fredericks Foundation.
Mr Wymer and wife Kellie, both 27, used it to refurbish their Simply Baking cafe at Cogges Manor Farm in Witney, which they relaunched last year.
Mr Wymer feared their credit history would work against them, as they had fallen into debt six years ago.
He said: “When we came to borrow money, our business plan stacked up and the bank believed in me but I couldn’t even get a cheque book on my personal account, let alone borrow £4,000 to 5,000.”
The Wymers worked on a fresh business plan with a Fredericks adviser and the Chalgrove-based charity agreed funding.
Now, the couple’s business is thriving and they plan to repay their two-year loan early. The foundation specialises in micro finance, or cash amounts the multi-billion-pound banking sector considers tiny, and is an example of the new breed of alternative financiers.
It will lend up to £10,000 for start-ups, or up to £20,000 to those already running a business, although a typical loan is £4,000.
Applicants must have been turned down by a bank to qualify and interest is charged at 15 per cent, with a five per cent fee.
In comparison, some banks charge up to 30 per cent and credit card rates are often over 20 per cent.
Any profit is ploughed back into Fredericks, then loaned out again.
Charity director Audrey Slade said: “When it comes to very small loans, banks won’t make enough profit and would not want to take that amount of risk.
“They are formulaic and have got into the habit of being very risk averse.”
About three-quarters of those the foundation helps are successful, paying back the loan with interest.
Ms Slade added: “A panel looks at the business plan and assesses how serious and committed they are.
“It’s the old-fashioned model that banks used to use. We know we won’t get every penny back but we’ll get a lot of it.”
Oliver Jarvis was turned down by the Witney branch of LloydsTSB when he asked for £4,000 towards setting up his copy-editing business, globalproofreading.com Mr Jarvis, 41, secured £2,900 from the Fredericks Foundation and is doing well.
But it is not just start-ups being refused funding, or offered unattractive terms.
Oxford-based Anne Veck’s hair salon business has been established for 20 years, with salons in St Clements and Bicester.
In order to borrow £81,000 from Santander Corporate & Commercial Banking for improvements, Ms Veck was asked to pledge her house as security.
She explained: “Six years ago I borrowed money for the Bicester salon and it was much easier to borrow money then.”
The Federation of Small Businesses says this is typical. Spokesman Sara Crane said: “Even with businesses that have full order books or have been trading for 20-odd years, banks are putting huge security demands on a loan.”
However, Graham Ballantyne, regional director of Thames Valley & Cotswolds business banking for NatWest, dismissed the anecdotal evidence from small businesses.
He claimed his bank approved 90 per cent of applications and said it had loaned £9m to almost 100 Oxford businesses since the £4.4bn Funding for Lending scheme backed by the Bank of England started last August.
But he admitted there had been a “slight tightening-up” recently, adding: “We ask more questions and go into things in more depth with customers prior to granting finance.”
The approach of the banks, concluded Fredericks Foundation director Ms Slade, was likely to damage them in the long term.
“They are missing a trick,” she said. “They take a tick-box approach and if you do that, you miss some of the opportunities.
“And many business people out there are bank customers. When their banks won’t lend to them, it does not sit very well with them as a customer.”