‘Deceit on bank lending’? No, but Vince Cable is on the right track

Vince Cable has announced that the banks are not telling the truth about how many business loans they agree. The Banks (Lloyd’s most publicly) assert that they consistently approve 8 out of 10 Applications. The real issue here is the banks loan equivalent of the ‘sales funnel’.

It may typically go like this:

Step One: business owner (who may never have borrowed from a bank before) seeks the view of trusted adviser – say the accountant. That conversation could easily be discouraging (“I’m not sure you’d qualify, other clients are having so many problems etc).

Step Two – Initial discussion with bank, which could be over the phone. If they get what I call a ‘Talented and Trusted’ manager they could have a productive discussion. Chances are however they may speak to someone who is not well versed in this, their business or the process – the response could well be discouraging.

Step Three: They decide to proceed regardless and formally approach the bank. Bank ask for more information. Despite the time demands and the frustration the further information is provided – sometimes at some cost (may have to ask accountant to produce projections for example).

Step Four: information leads to questions which need to be answered before the bank manager is prepared to do a formal application to credit. Questions may or may not get answered and the answers may or may not be satisfactory. Further information could be asked for – this roundabout could go round for some time.

Step Five: The Bank Manager now feels confident enough that the proposition is sensible enough for him to put his name to/stake his reputation on. A FORMAL APPLICATION IS COMPLETED TO CREDIT. Note that this is likely to be the first time that this approach for borrowing is registered anywhere on the banks central systems.

Step Six: Probably further questions and more information called for from the credit team before they will sanction it. ‘Lets go round again’.

Step Seven: 8 out of 10 of these applications are then sanctioned. However they may be sanctioned subject to a number of conditions. These may be simple to comply with, but they may well prove to be so difficult, unrealistic or unpalatable that the business owner regards the ‘sanction’ about as good as a ‘decline’ and doesn’t proceed. This is still treated as an approval in the banks records and a loan that was agreed but where the applicant ‘chose not to take it up’.

So: yes perhaps the banks do approve 8 out of 10 ‘applications’ – but it is hardly a robust measure of how effectively the process is working. But let’s be grateful for the deals they do sanction.

It is possible to shortcut this whole process and stand more chance of success of course – but this is what the typical business owner attempting this process on their own may experience.

Vince needs to get closer to the reality here – but perhaps so do the people at the top of the banks.

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