The government will make its much-anticipated response to the Vickers' Commission on banking on 19 Dec.
In the run-up to that announcement we are blogging on access to finance and especially we are trying to highlight the less-emphasised aspect of Vickers' recommendations – his calls to boost competition in the UK banking sector.
Today I'm setting out where we've come from and what challenges UK companies are facing now accessing the finance they need to grow.
If we cast our minds back to before 2007 everyone likes to climb into the banks for their recklessness.
However we shouldn't forget that the easy access to finance was not exactly shunned by companies either.
Some companies that banks backed shouldn't have got any money. Some got financed on terms that didn't reflect their risk. Businesses weren't complaining.
So the adjustment in risk assessment by banks was necessary not only to correct reckless lending but also to correct reckless borrowing by companies.
This is important to accept because a lot of the so-called ‘bank-bashing' we hear is caused by firms facing a wholly appropriate change in their access to finance.
So with that admission out of the way, what is the situation we find today?
We make three main points on credit conditions facing UK companies:
The availability of finance on reasonable terms has to improve.
Too often banks and actually finance providers outside of banks are attaching unreasonable terms to lending conditions.
Take covenants on lending. I've had a member tell me how these have been adjusted to include a requirement to make a profit on a monthly basis. Anyone with any degree of seasonality in their business will know this is a tough ask – and not reflective of the underlying risk of the business.
Even when terms and conditions are reasonable, because of more robust risk assessment, standards of communicating changes from past practice are often poor.
The SME Business Finance Monitor last month said that 49% of firms approached by their bank to renegotiate T&Cs were given no reason.
The cost of credit is too high.
We've seen the government finally recognise this by announcing a raft of schemes under the banner ‘credit easing' designed to bring down the cost of credit for SMEs.
The cost is particularly salient for costs outside the headline rate on loans. Our Credit Conditions Survey has consistently shown a balance of companies reporting an increase in fees on existing lending, for example the fees attached to overdrafts.
For me the escalation of these fees, often product-specific, is the clearest indication that we haven't got enough competition in UK business banking.
The last point we emphasise on lending conditions today, is the special plight of SMEs. SMEs consistently fare worst on both the cost and availability of credit.
SMEs also have the least alternative options and are often dependent solely on banks for external finance.
Greater choice and competition in banking is therefore very important for SMEs.