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Banks need to regain trust of businesses

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The relationship between banks and businesses needs to be repaired following the economic downturn.

That was the finding of a survey carried out by the Institute of Chartered Accountants in England and Wales (ICAEW).

The research suggested that a number of SMEs feel “scarred” and “bruised” by their treatment by the banks during the recession, and that hard work is required to build up trust once more.

The sense of distrust has been exacerbated, the ICAEW said, by the apparent lack of authority wielded by bank relationship managers.

Often, managers seem to resort to a “tick-box” approach when handling requests for finance from firms.

Other complaints that surfaced in the survey include the level of fees charged by banks, despite the fact that interest rates are at a historic low.

Increased demands for security and personal guarantees on loans have served to pile additional pressure on small businesses seeking funds, the ICAEW went on to say.

Meanwhile the entire process of applying for a loan now takes longer to complete, and banks often give out inconsistent signals as to whether the application has a chance of succeeding or not.

In response to the survey, the ICAEW put forward a number of recommendations.

Relationship managers in banks should be given greater responsibility for agreeing credit requests at a local level. And banks should look to improve the contacts between their employees and businesses.

The ICAEW also wants to see much more clarity in the finance application process, with 95 per cent of requests dealt with inside 28 days.

In those cases where a loan application is refused, the bank should advise the business on the likely success of pursuing alternative forms of finance.

Michael Izza, chief executive of ICAEW, said: “Businesses miss the flexibility and helpfulness which used to exist in banks. As the UK recovery becomes more established businesses will need finance for working capital and investment to help economic growth.

“Banks need to start rebuilding these relationships now to give SMEs confidence to seek finance for growth and this should be addressed urgently.”

Mr Izza added: “Whilst these recommendations require the banking sector to take a lead, it is critical that government, the banking industry, business groups, SMEs and the accounting profession work together to help resolve these issues in the months ahead.”