SME access to bank finance: Lost in translation

31 October 2013 / Insight posted in

New research exposes major disconnect between banks and SMEs re securing finance

The lack of understanding that banks and small to medium sized enterprises (SMEs) have about each other’s needs and processes has been highlighted by a new research report commissioned by top 20 chartered accountancy firm Kingston Smith LLP.

The research, conducted by the Business Schools of the Universities of Surrey and Greenwich, is titled Bank finance – lost in translation, as it reveals a number of key misunderstandings between banks and SMEs that can act as barriers to SME lending. 

The findings, based on face-to-face interviews with the senior lending policy makers at five major and challenger high street banks, as well as interviews and focus groups with SME owner/managers, demonstrate that SMEs are often unaware of banks’ lending criteria. Indeed, the majority of SMEs regard each bank’s lending decision criteria as a black box, about which they have very little knowledge. The research further reveals that many SMEs seem unaware of the need to have both a good credit rating and a realistic business plan, or the need to share the financial risk.

The report proposes a series of recommendations to banks to help bridge the divide, including providing clear details of their loan criteria to SMEs; outlining how different factors, including credit history, will impact upon their decision making process; and providing clear, tailored, constructive feedback on their loan decisions.

In turn, SMEs are encouraged to prepare realistic business plans and seek expert feedback before they are submitted; to be aware that banks’ lending portfolios will focus on different sectors at different times; and to demonstrate financial acumen over a number of years, among other recommendations.

Speaking at the launch of the research today, Sir Michael Snyder, senior partner of Kingston Smith, highlighted one of the key issues for banks and SMEs: the pricing of finance. He explained, “If banks felt able to price loans differently, charging a realistic interest rate that would allow them to be profitable, then greater risk would be acceptable. Unfortunately, perceptions surrounding the cost of finance – what it should or shouldn’t be – is causing a huge barrier to both banks and SMEs.”

Professor Mark Saunders of the University of Surrey, who co-led the research, commented: “Our research findings highlighted the need for clearer and more detailed information flows between the banks and SMEs. Whilst SMEs need greater clarity about the process by which banks make their lending decisions, they also have to keep in mind that loans are made on a commercial basis.”

Study co-director, Professor David Gray of the University of Greenwich, added: “To increase their chances of a successful loan application, not only must there be a sound business proposition, but the SME must also demonstrate their financial acumen.”

A copy of the research report, containing further key findings and recommendations, can be downloaded from Kingston Smith’s website at The report was launched at Google Campus in London on 31 October 2013.