Banks told to boost lending

March 23, 2010

Going to get on my soap box this morning about a subject which is really irritating me at the moment.

Apparently in tomorrow’s budget Alastair Darling will be telling the two part-nationalised banks what their new lending targets will be for 2010.

It seems ludicrous to me that they should be targeted at all as I believe that this could potentially lead to a return to some irresponsible lending which is surely what got those banks into that mess in the first place.

Banks want to lend money – fact.  That is one of the ways they can make a profit and in the case of Lloyds and RBS they will be more keen than their competitors to return to profitability as quickly as possible.

The latest ISC Census (2009) confirmed annecdotal evidence that the independent school sector was looking to hold back on any major cap ex projects in 2009 and I am sure the 2010 Census will confirm this to be the case.  Certainly, when I was working at Barclays I did not see anywhere near the appetite for lending last year that I had seen in the preceeding few years.

This reduced appetite, economic conditions and a general air of caution by business owners generally, not just in independent schools, means lending in 2010 will continue to be a challenge.

There has been a lot of talk about businesses, particularly small and medium sized enterprises, not getting access to the funding they require and that banks just aren’t lending.  Certainly when I was at Barclays that was way off the mark as there was significant funding available for lending propositions but (and it’s a big but) they needed to be creditworthy.  And this, I think, is the issue.  With the message out there from the Government that banks should be lending billions of pounds businesses across the country suddenly started to assume that this also meant the lending criteria was different (more relaxed) when that was obviously not the case.  Economic conditions aside, and  clearly they too have a bearing on credit decisions, the normal ‘good canons of lending’ still need to be applied.  Businesses who had sailed through for up to 10 years and had never seen a recession suddenly found themselves in a completely different landscape and some were much more prepared than others both operationally and financially.  In addition many businesses had never experienced being turned down for lending and so to face this was a shock.

The good news in the schools sector is that banks are as keen as ever to lend and there are still some good deals to be had, albeit the days of sub 1% lending margins are a dim and distant memory.

With a unique insight into the credit application process I can offer some excellent assistance in this area.  Bank funding is a long-term and very important commitment to make and so a small investment of time and money upfront to ensure you have the right deal is imperative.

So I await with interest Mr Darling’s budget tomorrow – at least we might have something to actually talk about rather than discussing the fact that everything was a reannouncement of measures made in a previous budget!

Posted by Lorraine | Filed Under Bank lending, Budget 2010, ISC 

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