The Real Reason Banks Wont Lend To Business Anytime Soon
The economy is growing, inflation under control, interest rates expected to stay static in 2014, a bit more feelgood in the country. The banks are saying the right things, funding initiatives everywhere.
So, why are small businesses still finding it hard to get commercial finance?
Only A Fool Makes The Same Mistake Twice
Forget everything you hear. The answer to bank lending, or lack of it, lies in human nature. We can all justify doing something that was right at the time which later proved not to quite work out. That’s fine, but doing the same thing again? That is foolish.
The Monkey Experiment
There was an experiment many years ago where a group of monkeys were in a cage. Every time a monkey started to climb a ladder all the other monkeys were squirted with water. After a time whenever a monkey went near the ladder the other monkeys would stop it. Then they removed the monkeys leaving only one and replaced the others.
Every time a monkey went near the ladder the older monkey stopped it. Eventually no monkey would climb the ladder, any that did would be stopped. This happened even though no original monkeys remained. None of the monkeys left knew why they did this, it was just what always happened.
Bank Credit Teams
The diagram below sumarises things. The thing is that most bank credit teams are made up of a few experienced heads and a number of graduate or more junior specially trained management.
The thing is that if you trained during a period of bad debt and loan losses, then that is all you knew. Allow a few years of training and development then it will be a few years yet before bank credit teams are staffed by people who can remember better economic times.
The serious point here is that the delay in gaining of knowledge and experience will see a delay in the sanctioning of more commercial loans.
We are not saying the above is an exact science, the point is that changing the culture of banks toward being keen to take on commercial loans will take time. Regardless of initiatives and small talk, we have to account for human nature and that says once bitten twice shy.
The Answer To Lack of Bank Lending
It is not all doom and gloom. There are good alternative sources of finance available. Crowdfunding offers opportunities as do some newer and specialist banks, so it is far from all doom and gloom, just don’t kid yourself that the banks are the only place for business finance.
You do have options, just give us a call.
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By Lime Consultancy