The B4 finance debate brought to you in association with Wenn Townsend
Wenn Townsend partner Tony Haines wants some clarity about finance and how his clients can access it to fuel future growth. With some financial experts claiming we are on the verge of another recession, combined with seemingly never-ending uncertainty surrounding the implications of Brexit, businesses in need of finance to grow are, according to Tony, finding it increasingly difficult to find a way through the changing lending criteria which banks put in their way. Over the next year, B4 will tackle these finance issues, find out what the key challenges are for businesses, ask if our criticisms of the lenders are valid and look at what other sources of finance are open to business owners as they plan for the future.
Tony quips that, “There has always been a bit of a view that banks are keen to lend when you don’t need it but when you need it, the going gets tough.” Whether that’s true or not, Tony speaks from the experiences he has heard through his large customer portfolio at Wenn Townsend, one of Oxfordshire’s leading and most respected Chartered Accountants.
“It’s difficult these days because, from what I and other partners have seen, there are a rigorous set of rules that the banks impose, which is fine as it’s their money and I know it’s ten or eleven years ago since the financial crisis, but we are still reeling from the banking crisis and companies are finding it harder than ever to access finance. I don’t think anyone realised how deep the crisis was at the time, but obviously, with hindsight, it was very precarious and it’s not a place we want to go back to. Having said that, lending criteria changes too frequently. The lending criteria is given to clients when they apply for finance and before they know it, the goalposts have changed. Certainly in my experience this has happened with one or two of the High Street lenders.” Claims Tony.
“We still have the problem that whilst a manager knows a client, cases still get passed up to Head Office and quite often local agreements are overturned. Its normal for owner managed companies to give personal guarantees – this has always been the case – but quite often the link between salaries and dividends is something that a lot of bank staff seem to find difficult to understand. Frequently an owner manager will have a low salary and high dividend to be more tax efficient and avoid, legitimately, paying NI. They apply for a loan but the lender will look at three or four times their salary only, which might only be £7 or £8,000 although their total package might be in excess of £50,000.
“Dividends, as far as banks are concerned, aren’t earned income. If you’re dealing with providers who can’t accept the total take from a company then I think we have a problem. They should have staff capable of understanding that an owner manager who splits his or her income between him or herself and their spouse to be tax efficient is actually earning more than they give him or her credit for.
“There are all sorts of legitimate tax efficient arrangements for couples that are penalised when it comes to looking at financing. You might have a client who has had two or three years of heavy pension premiums that would otherwise go into their own bank account but for tax efficiency they have decided to make pension payments for one reason or other, but these amounts aren’t taken into account by a lender. It’s difficult to get past some of those issues when a company and the bank manager that assists the company understands what they are doing, but head office rejects the application further down the line because they don’t take all of the facts into account.”
Tony has known people use credit cards to get cash deposits to put down on house purchases and with credit card debt at its highest level since 2007, has the public learned its lesson? Arguably not. It’s down to the individual and to be fair to the banks, they have had to get tougher because of past experiences. But the debt that has built up will take time to turn around.
There are alternatives. Boutique Banks are appearing as an alternative to the traditional High Street lenders. There are also banks with a new approach such as Metro which has just opened in Oxford and which appears very much open for business. Even crowd-funding has become a reliable source of finance.
So is Tony wrong or are the banks right to adopt a draconian / ever changing approach to lending? Have you had problems applying for finance or can you shed light on why the banking system, seemingly, adapts the rules to deliberately make it hard for you to borrow? Do you even regard traditional banking as core to your business operations or have you found reliable alternatives?
Through a series of surveys, round tables and open and honest debate, B4, in association with Wenn Townsend, is just looking for clarity. This isn’t a witch hunt, it’s a straightforward look into helping all businesses understand what the banks are looking for when it comes to lending and giving us all the facts so we can accept when things don’t quite go to plan. It’s also an opportunity for the banks to educate the business community and help in the long run.
So if you’re interested in taking part in the surveys, these will be dropping into your in boxes over the next year and the findings reported in B4. We will be inviting relevant parties to our roundtables to debate the issues further but please do let us know if you would like to attend any of the meetings, with priority given to B4 members.
Let’s get to the bottom of the issues so we can all be better prepared to invest our time efficiently in growing our businesses at a time when time is of the essence for all of us.