Smes and the Banks – an Uncomfortable Liaison

I have been advising large, medium and small businesses for over thirty four years, especially when they have faced financial trouble. In my experience there has never been a time when the image of banking was worse than it is at present.

In short, I believe the banks can improve their image given time, but they must change to reflect the times that we live in now. So, when focusing around SMEs that face insolvency, what can the banks do to improve the perception of the banking sector’s relationship with these businesses?

Mike Smith

Businesses fail for a variety of reasons, but in my experience the most common reasons are due to a lack of knowledge and experience. What a perfect opportunity for the banks to improve their image by getting back to their roots and helping local business. How? Providing local know-how and experience which used to be a given when you spoke to a bank manager in the past.

This may never have been in the old fashioned ‘managers’ job description, but I regarded my first bank manager with a great deal of affection and respect. He was extremely knowledgeable about business and would point me to this book or that seminar, or had an answer to all my questions.

Over the last twenty years I have dealt with dozens of relationship managers and I couldn’t tell you the name of one of them. It was clear that they were only interested in selling a product. I couldn’t even tell you what they have done for me following our many ‘snatched’ conversations. Some may think this is not the bank’s role, but I see this as a lost opportunity for the bankers. What better way to safeguard their investment?

The issues arising from the Tomlinson review undoubtedly will change the way the banks interact with SMEs. If they don’t, they will be replaced by alternative lenders who are currently gaining ground with the government, whilst the banks are losing favour. If the perception that banks are not trustworthy institutions persists, the government may divert funds and underwrite to more trusted sources.

One question that almost certainly arises every time I am involved in a banking receivership/administration or liquidation prompted by a bank is the issue of professional insolvency fees. Of course the bank has to protect its interests but why choose from the same insolvency practitioners every time. Some of the fees I have seen are enormous in comparison to the size of the debts and lack complexity. By suggesting local insolvency practitioners, not only would it boost the bank’s credibility, by providing a service from their own community. I believe applying something along the lines of the Insolvency Services rota system would help the banking image on a number of fronts.

These fees are particularly galling to hard pressed directors when the same liquidator and or bank may be pursuing the director for the family home via bankruptcy action. This is particularly the case when there should be more than sufficient funds in the debtor book to clear company debts and consequent personal guarantees.

Unfortunately, the secured nature of the bank lending affords them the right to appoint their own administrator over the director’s choice. This often leads to the debtor book collection being completed in a more casual manner than the director would have done had they been allowed to control it. Clearly they are the ones who have the relationship with the debtors, and they are the ones at risk. So why haven’t they got the right to protect themselves?

I understand the legalities and insolvency rules but we are talking about people’s lives and families and sadly the majority of directors in these circumstances end up divorced. Far too often directors are judged as being ‘guilty’ of something and they are often accused of being evasive and deliberately obtuse.

As Business Rescue Consultants our company’s motto is ‘your protection is our priority’; and I make no apology for that. My own experience is that the majority of company directors are very hard working individuals who are unable to think clearly due to lack of sleep; likely to have contemplated suicide over the previous few weeks; probably suffering from severe depression; family relationships strained; and completely confused by the huge legal juggernaut that has taken all control away from them. In these circumstances, anyone may appear evasive and confused.

Banking should get back to its roots and offer a service via  managers who are trusted business advisers not salespeople. Only then will their reputation be restored and both the banks and business customers will benefit.

Mike Smith is Director of Jameson Smith & Co a business debt specialist. Mike provides business turnaround and insolvency advice and solutions to UK directors and accountants.