Of course we are lending! Oh no you’re not!

Like the heading? Well it is Panto time of course (ours went very well since you ask) and it is nice to be seasonal occasionally, even if at times there is not much to smile about.

One area that is definitely causing frowns to form in a number of places is the subject of bank lending. “Banks must lend more” cry politicians and business organisations. “We want to lend and we are lending” say the banks. “Oh no you are not”, comes back the reply (see, this Panto lark is catching). And so the circle of claim and counter claim goes on.

So what is the truth? I recently went to a Surrey Chamber of Commerce event, where four representatives from each of the main high street banks braved the local professional services community for an enjoyable question and answer session. What became clear during the discussions was that there was a definite flight to quality, and businesses boasting good management teams, strong security and organic growth potential in attractive sectors were the ones they were looking to develop long term relationships with. There was an admission that there was limited appetite at present for smaller deals.

Although cash flow based lending was had been substantially reduced, banks were now looking to ensure they understood the cash flows in the business. There was a definite move away from traditional loans and overdrafts towards more asset based lending products, such as invoice finance. Covenants would be tighter, and these would be regularly monitored. They claimed that they had used the recession to get a lot closer to their clients.

The banks emphasised that they did want to lend, as that is their business. However they were finding that many of their clients were reluctant to borrow, even if offered a good opportunity, preferring where possible to pay down debt. Much of their recent “new” lending activity has often been refinancing and restructuring. However they said that the new Enterprise Finance Guarantee Scheme (EFG) was being used more widely than its predecessor, the Small Firms Loan Guarantee Scheme (SFLG).

On the thorny issue of pricing, they said that it was inevitable that spreads would increase, particularly compared to the current low Bank of England base rate, not least because the banks’ own funding costs were higher than this. Other factors currently influencing pricing were scarcities caused by the withdrawal of many foreign banks from the UK market, regulatory requirements, such as Basle II, and more focus on risk based pricing models.

The banks have been at pains to emphasise that their lending criteria have not changed and that they remain open for business. Anecdotal evidence however suggests that it is still extremely difficult to get money out of a bank for anything other than a “sure thing”.

This is not a “bash the bankers" piece as, in the main, the banks have been much more supportive of businesses battling the recession than they have been given credit for. Also, we probably don’t want to go back to the “cash machine” mentality that existed in those halcyon pre credit crunch days. However a little more pragmatism in bank lending in the current climate would be nice.

When the going gets tough, it is time to show real leadership

Leaders. Overused, abused, misunderstood?

Possibly, although I think these words are more apt when they apply to the term leadership. Never in the field of business education has there been a more analysed and yet arguably more poorly taught discipline. Many would-be business leaders on leadership courses end up being put through all sorts of self analysis tools, pumped full of the most up to date leadership theories and encouraged to seek their examples from the sporting and military world. And yet in spite of this, leadership in the UK remains of varying quality, and most business failures tend to be the result of poor leadership.

I recently attended a Surrey Chamber of Commerce breakfast which had leadership as its theme, and featured Simon Hazeldine of Mentor Group as its main speaker. Simon’s theme was that leadership was about results and that basically without great results, you cannot have great leadership. He noted that the quality of a leader was reflected in the quality of the team that they led, and that an employee’s behaviour will often be determined by that of their leader. He saw employee engagement as the key to avoiding the not insignificant costs of poor performance, and that leaders needed to use logic and emotion to win the hearts and minds of their people. All very good stuff, and well worth the early morning trip to Epsom Downs racecourse.

As highlighted by Simon above, the best leaders invariably have the best teams, and it is often how these teams develop their own leadership qualities that will shape their success. Regardless of position, job content or (dare I say it) salary level, nearly everybody is expected to show leadership in some way, and it is organisations that recognise this, and train their people accordingly, that are more likely to be successful in the long run.

But leadership training should not just be the preserve of big corporates. Dealing with SMEs as I do, I am often struck by how the assumption that entrepreneurs are natural leaders is accepted without question. Sure, some entrepreneurs do show the right aptitude for leadership, but many begin to flounder the moment their businesses start to gain any sort of momentum, or worse, they believe that because they are the boss, and that it is their company, they will automatically have leadership status conferred upon them without the need to do anything to justify it. Such businesses invariably underachieve, which is a shame, as they often have the potential to become real contributors to the future growth of our economy.

Leadership has probably been quite easy over the past few years as it has been relatively simple to be successful. However, given that success is much harder to come by in the current climate, now more than ever good quality leadership will be the key, not only to surviving, but to being well prepared for the upturn when it arrives.

Help from Top to Bottom

Real help for people and businesses is a phrase that is being bandied about an awful lot at the moment, particularly by the Government as it seeks to find ways to support the economy during the present downturn. This help currently includes the various funding schemes that have been put in place such as the Enterprise Finance Guarantee Scheme, business health checks courtesy of Businesslink, skills training for individuals and businesses, and many sources of advice to assist with personal debt, redundancy and getting back to work. Full marks for effort although clearly these are top down initiatives, and it will take time for this help to get through to those who need it and have some real impact on the economy.

However there are also some bottom up initiatives being launched, such as the one that I saw when I visited the Spelthorne offices of the Surrey Chamber of Commerce recently. Known as the Enterprise Zone (or EZone), it is a scheme intended to help new businesses through their start up period, and is designed to be a credible and more professional alternative to a home office. Along with a fully equipped office area with reception and secretarial support, there is also access to business services and advice, and perhaps more importantly the chance to share ideas and get peer support from like minded business people, who have decided for either economic or lifestyle reasons to strike out on their own. In short it is a practical, efficient and effective solution for new businesses looking to get going, and hopefully will quickly generate some benefits for all concerned as well as the economy as a whole. All in all a very good idea, which like all good ideas it just needs a little push, something I am more than happy to do.