Britain’s banks should not be forced to lend and small businesses are pointing the finger in the wrong direction for their failure, according to the leader of one of the top business organisations.

Philip King, Chief Executive of the Institute of Credit Management (ICM), says that the agreement reached by Britain’s largest banks to new lending reforms will serve merely to hide a much bigger problem: “I have seen several examples where a bank’s refusal to lend appears to lack logic, and they have made unreasonable and unacceptable demands of their customers,” Philip says.

“But I have also seen small businesses that are clearly in terminal decline, blaming the banks for their woes when it’s obvious that lending more money would only have delayed the inevitable insolvency.”

Mr King agrees that the banks’ record at supporting businesses is not as good as it is claimed to be, and getting the top level thinking down to local management is similarly not as effective as it might be. But a bigger problem is that SMEs are not as good at producing credible business plans to support requests for funding as they should be, nor as good at collecting cash due to their businesses as they need to be:

“It’s about the basic principles of good credit management – you don’t lend more than a customer can afford to repay and you drive profitable sales while protecting your business against unnecessary and avoidable risk. 

Mr King is also wary of the Government’s track record in delivering projects of such scale: “The Government doesn’t deliver initiatives in a way that makes them easily understood by business, and its follow-through is usually poor,” he says. “And there is a disconnect between the views of the small business organisations and the views of the banks about the reasons and causes of the funding availability issues.

“But regardless of the issues, banks should not be forced to lend to small businesses. What the Government should be doing is encouraging them to understand their small business customers better and provide them with best advice, and also be more imaginative in the type of help that they can provide.”