Are The Banks Lending?

In late 2008, in the midst of the deepest recession in modern times, Colchester man Spencer Priestley decided to start up his own business in the building supplies trade, one of the sectors hardest hit by the downturn. As a former director of FTSE listed SIG PLC, Priestley knew his market well and felt that, despite the obvious timing implications, there was still a good opportunity for an independent, professional business to supply underground drainage, PVC windows and Eco Building Products to trade and DIY customers within his local Essex area. And whilst starting up in such difficult times was never going to be easy, Priestley took some comfort from all the headlines screaming that the Government was going to pump enough liquidity into the banks to enable them to lend to UK small business once more, applying some much needed oil to the wheels of UK industry. The reality, as Priestley was soon to find out, was very different.

Move forward eight months and the business, Professional Building Supplies, is thriving. But how much support did the business receive from the banking sector? And would anyone give Professional Building Supplies credit terms?

Priestley comments "I approached the bank (one of big four) with a cohesive business plan that included a two year financial forecast. I was investing a six figure sum myself and looking for a small overdraft facility for back up. This would allow me to invest as much of my own money as possible into stock and quality staffing, both of which are crucial to a builders merchant. The bank's small business manager verbally agreed to my request and we progressed with the business set up. A month later, I still hadn't received confirmation of the overdraft, so I made some chasing calls. I was shocked to find out that "bank policy had changed" and that the agreed overdraft was no longer available. The best that they could promise was that they would review the situation when and if we went into the red. This sounded ominous, and somewhat akin to reviewing the lifeboat situation after having struck an iceberg, so I protested vigorously. After a month of heated discussion, the bank finally agreed to my initial request, but only for a one year fixed period ( and I probably wouldn't be needing the facility within the first twelve months!) and only if I paid an inordinately high fee up front. That was the best they could do.

Priestley reflects; "I really should have shopped around, but at that time we were headlong into the set up phase and I just couldn't spare the time."

Fortunately, Priestley's trade suppliers have been supportive, with most offering sensible credit terms. Crucially this has enabled the business to do the same with its own customers, most of whom have helped the business find its feet by paying well on time. Priestley has suffered one bad debt to date, ironically from a long established contractor whose overdraft facility was removed without notice from the very same bank!