Small Talk: SME lending data throws up more questions than answers

Britain’s banks are convinced the key to repairing their relationships with customers is to be ever-more transparent about their activities. So it is that they have just published detailed statistics on lending to small and medium-sized enterprises in 120 postcodes around the country, including data on how much cash these SMEs have on deposit in the banks.

No-one should be criticised for openness. But there’s so much data here that it is difficult to see the wood for the trees – nor is it clear that these are the right figures to judge banks’ performance on, or even with which to identify granular issues with small businesses’ access to finance.

The British Bankers’ Association (BBA) hopes the data will convince people that its members genuinely are lending to SMEs, despite the widespread scepticism prompted by the disappointing figures from schemes such as Funding for Lending.

Danny Alexander, the Chief Secretary to the Treasury, has a different ambition, which rather suggests he doesn’t entirely buy the BBA’s story. Mr Alexander thinks the publication of this data, due to be expanded to 10,000 postcode areas from January onwards, will help other players in the sector to target areas where the banks aren’t providing what is needed.

That, of course, implies these areas exist. If that’s the case, then it makes sense to shine a light on these locations. New entrants to the banking sector such as the clutch of SME-focused banks, could make a beeline for the areas in need. Community development finance institutions might have a role to play too.

So far so good. The problem is the data throws up some mixed messages. There are some examples of postcode areas where debt appears to be an issue. In Llandrindod Wells in Wells, SMEs typically owe £20,000 more than the cash they have in the bank. By contrast, in central London, SMEs are, on average, £121,000 in credit.

But does that mean the Welsh businesses need more support? Or does it imply London-based firms aren’t getting the cash they need? It’s difficult to say. Certainly, the regional figures suggest banks are doing their best to reach areas that need them most. London-based firms, for example, generate 29 per cent of the country’s total turnover, yet account for 21 per cent of bank borrowing. In the South-West, SMEs account for 11 per cent of total borrowing yet generate 5 per cent of turnover.

Still, has anyone ever suggested that banks are shunning businesses in particular areas of the country? It is certainly not a common complaint. Rather, SMEs complain that certain types of business are struggling to access finance, like firms at an early stage of development or those in particular industries.

The biggest issue of all with this data, however, may be the figures, in aggregate, appear to show small businesses don’t currently want to borrow. In 70 per cent of the postcode areas on which data has been published, SMEs have more cash sitting in the bank than the total value of their debt. That suggests either SMEs are in rude health or many businesses are so nervous about the outlook they’re piling up cash rather than investing for future growth.

On balance, the latter explanation seems more likely. Certainly, the anecdotal evidence is small businesses remain cautious. Many report improving business conditions but believe they’re the exception rather than the norm. Most complain of poor visibility about what the future might bring.

Such worries are, of course, beyond the power of the banks, which can only lend to those businesses that feel comfortable about applying for credit. Until there are more of those, total lending is likely to remain subdued.

Creative firms can dip into new £1m fund

Do you work at a small business involved in developing software, applications and other types of content? If so, a new £1m fund from Creative England might be able to help your business grow.

The fund, which is backed with finance from the Regional Growth Fund, is to be offered in the form of interest-free loans worth between £60,000 and £100,000, and is available to SMEs working in markets including cross-platform TV development, feature film production, healthcare, government services, games and interactive entertainment, and e-learning. Creative England runs a number of similar initiatives aimed at different parts of the creative industry, having been launched in October 2011 to amalgamate the work previously done by eight different agencies.

Blues owner Abramovich backs AFC electric option

Fernando Torres excepted, Chelsea owner Roman Abramovich tends to be a smart investor. So when he put £8.7m into Alternative Investment Market-listed AFC Energy last year, people took notice. His business partner Eugene Shvidler now sits on the board.

Small Talk understands AFC will this week announce a breakthrough for the fuel cell technology it is pioneering, used in space by US and Russian astronauts, but which engineers have struggled to make commercially viable on Earth. AFC will say its fuel cell prototype has been generating electricity without interruption for 12 months and that power output has risen by 60 per cent over the year.

Fuel cells, an alternative energy source to fossil fuels, are generally associated with electric cars, but AFC has high hopes for much larger cells that could power major industrial sites.

Small Business-Woman of the Week: Nancy Traversy, chief executive, Barefoot Books

We’ve just celebrated our 20th anniversary – we founded the business in 1992 with help from the Business Expansion Scheme to encourage small business development.

“Since then, we’ve published more than 600 books and tried to stay true to our belief that there were too few books for children with an emphasis on wonderful storytelling and beautiful artwork.

“Our approach has always been very different. From very early on, we tried hard to connect with parents and teachers, rather than the middlemen of the book trade.

“I don’t think it’s necessary for our business to sell to the big chains. We’ve stopped trading through Amazon. We had no human interaction with the company and it was often selling our books at huge discounts, which undermines the independent booksellers who have always been our partners.

“Social media makes it far more possible for us to connect with our customers. We’ve begun experimenting with the digital market. Apple recently picked its 10 best apps of all time; we were hugely proud that our Barefoot World Atlas app was one of them.