RBS accused over financing of small firms

By GARETH MACKIE
Published on 22/07/2012 00:00

ROYAL Bank of Scotland has been accused of pressurising an Edinburgh printing company, which has carried out work for the bank, into signing up to an “expensive” invoice financing arrangement rather than offer it a £25,000 overdraft.

Jim McKie, joint managing director of Perdiccas, said the facility would cost the firm up to £18,000 a year, which he described as a “significant” outlay. “It’s the equivalent of a person’s wage,” he said, adding that RBS told him it would only offer Perdiccas an overdraft facility if the directors put up their houses as 
security.

Invoice financing enables firms to access up to 85 per cent of the value of their bills before they have been paid by customers. Stuart Mackinnon, a spokesman for the Federation of Small Businesses in Scotland, said the experience faced by Perdiccas was “not uncommon”.

He said: “We understand that overdrafts are much more expensive for banks than they were in the past.

“There has to be middle way and we’d always encourage our members and the wider business community to shop around and investigate all their options rather than go with the first offer they get. Only if they vote with their feet will we develop a more competitive market.”

RBS also told Perdiccas that it would not offer a loan under the UK government-backed enterprise finance guarantee (EFG) scheme, which is designed to widen access to funding for SMEs.

Since EFG launched in 2009, banks have lent out more than £1.7 billion under the scheme, 75 per cent of which is guaranteed by the government.

A spokesman for the Department for Business Innovation & Skills (BIS) said that lending decisions were a matter for participating banks, and there was “no automatic entitlement to receive a guaranteed loan”.

He added: “BIS plays no role in the loan decision process, and cannot comment or intervene on individual cases. If the business is unhappy about the loan decline, they have the right to appeal the decision.”

Mackinnon said there had been a “mixed response” to EFG, and the FSB hoped the newly-launched funding for lending scheme would prove more successful in helping small firms access funds.

“Four in ten of our members say they were refused finance when they approached their bank,” he said. “We believe there’s still a problem there and we hope funding for lending will address this.”

The £80bn funding for lending scheme will offer money to banks on condition they pass it on to cash-strapped businesses and households in the form of cheaper loans and mortgages.

Perdiccas, a print management and consulting business, was formed seven years ago and bought marketing company Edmonds in 2010. McKie said he would like to stay with RBS, “but if they can’t come up with a solution we’re going to have to start looking for another lender”.

He added: “RBS said they can only offer us invoice financing, but we said that was too expensive and they would have to renew their rates. That was two weeks ago and we’ve heard nothing since.”

A spokesman for RBS said the group had lent around 40 per cent of all funds allotted under EFG, but invoice financing can be a better option for some businesses “and is not necessarily always more expensive” than an overdraft.