A small business support organisation is urging business owners who feel they have been unfairly denied bank lending to put a new appeals process to the test. The British Bankers’ Association announced the creation of the new process this week.
It sits alongside the Better Business Financecampaign and the recently-introduced Lending Code– a self-regulatory code of practice which the banks say they will follow when dealing with small business customers.
The appeals process will allow smaller companies to request a second opinion if they believe formal loan applications have been declined unfairly by one of the UK’s main banks.
The appeals system came about following a report from the industry-led Business Finance Taskforcelast year, which acknowledged the credit shortages facing small to medium-sized enterprises (SMEs).
It will mean that, if a business customer requests it, their loan refusal will be reviewed by a second individual at their bank who has not had any prior involvement in the process and a new decision will be made within 30 days.
If the loan application is still declined, the bank will provide information on alternative sources of funding. The overall process will be overseen by an external independent reviewer, Professor Russel Griggs, who will produce a report every year on the effectiveness of the process.
I believe the creation of the appeals process is a welcome step which should, if implemented correctly, help to restore some trust in bank lending among SMEs.
However, the not-for-profit small business support organisation believes it is crucial for business owners to pursue the appeals process if they feel they have been unfairly denied loans – even if they believe their application will be refused again – in order to create accurate information on the effectiveness of the system.
Finally, the major banks will be expected to spell out the standards British businesses can expect from them, and the Better Business Finance campaign will provide online support and an appeals process if lenders are deemed to fall short of these standards.
While it is always important to closely monitor any codes of practice – particularly those that are self-regulatory – providing banks stick to these principles, and there is a truly robust and transparent appeals process, I welcome the initiative’s much-needed aim of getting the banks to provide better, more affordable lending.
However, if business owners do not pursue the appeals avenue when their loan applications are denied, it will effectively let the banks off the hook and allow them to say that SMEs are happy with their lending decisions. As a result, I would urge all business owners who feel their loan applications have been unfairly turned down to lodge an appeal at the earliest opportunity.
What we need now are government policies to stimulate real competition within the sector, including measures to allow new and innovative funding platforms to gain a foothold in finance markets dominated by traditional high street lenders.
On the other side of the coin, it is also important that entrepreneurs can exert more control over producing proper management accounts that can allow them to proactively establish their creditworthiness. This is an educational process and will require some financial up-skilling for business owners.