Do banks lend to small businesses?

In Andy Bell’s first column for Tech City News, he talks from personal experience about the problems small companies face while trying to secure a bank loan and asks, “Do banks lend to small businesses?”

Not from where we’re standing

Robert Peston recently discussed how to get businesses borrowing more. He says the problem for banks is: “businesses they deem to be creditworthy simply don’t want to borrow right now.”

The view from this small business is rather different.

Mint is a small, fast-growing digital product development company. In eight years, we’ve gone from 2 people to 35. With access to a bank loan, we would have grown more quickly, hired more people and reduced the risk that a cashflow hiccup could capsize us.

At several points in our history we’ve gone round the banks, looking for a loan. We’ve tried them all: from the high street names to specialists like Coutts and Silicon Valley Bank.

We have always been turned down.

Why don’t the banks want us?

Initially we believed this was because we were a client-service business. We had almost no assets and little visibility over future revenue.

In the last year, we’ve become more of a product business, as StickyGram, our Instagram fridge magnets, has grown. This gives us more predictable revenue and a global, if small, brand.

The banks still said no, even for a tiny overdraft equivalent to a week’s turnover.

There was one way we could get a loan.

This isn’t business, this is personal

Banks would say yes if a director offered a personal guarantee, typically backed by a house. I was up for it, but wiser heads advised against. If the worst comes to the worst, they said, it is bad enough losing a business without simultaneously risking your house.

If a bank is only loaning on a personal guarantee, it isn’t really making a business loan. It is making a personal loan.

So our impression is that banks barely lend to small business at all. They lend on houses. The effects are all around us: Quantitive Easing inflates house prices but has little effect on business activity.

Our bank probably knows us less well than, say, our mobile phone provider. Every month our bank make the same mistakes related to how they process our payments. Trying to fix their mistakes, we get bounced between call-centres in different continents, never speaking to the same person twice. Our bank manager keeps changing, meaning we get little chance to build a relationship.

The UK could learn from other countries

Mint trains young people, we use high technology, we export. I imagine that Mint is the sort of company that would be supported by a finance system that works for the benefit of the country. I was struck by this Guardian article on the success of the German Mittelstand:

“In German law, the owner of a family business who passes it on to the next generation can avoid paying inheritance tax if, during their tenure, they have increased employment and thereby benefited the economy.”

This simple law means that the country and company are aligned for the long term. That’s far from being the case in the UK.


This post originally appeared on Mint Digital’s blog.