Coming out of the pandemic is good time for SMEs to review financial requirements - Craig Darling

How long has it been since you reviewed your business banking arrangements? At Gilson Gray we recommend reviewing your lending agreement every three years or so.

Now is a good time for SMEs to review their structures and financial requirements, and to consider renegotiating their banking terms or even switching lenders.

Money comparison sites have done a great job in encouraging us to shop around for the best financial deals. Most people have saved money when it comes to home broadband, car insurance, even savings accounts - simply by shopping around.

But when it comes to banking, it seems to be a different matter. In my day, you opened a bank account with whichever lender was offering the most incentives, and you stayed with that lender for life.

And the same approach tends to hold true with business bank accounts, which may seem surprising on the surface, but is perhaps understandable when you discover that some 50 per cent of lending applications by SMEs are rejected by mainstream lenders. It is certainly true that SMEs are finding it increasingly difficult to get finance because they don’t meet the requirements of the big banks in terms of access to funding. And often their credit score is less robust.

Here in Scotland, a country dominated by SME businesses where access to flexible finance is crucial, otherwise savvy business-folk are often inclined to stick with the bank they’ve used for years, since start up even, because they believe it is too risky to seek to make a move and risk rejection. But that can be a costly mistake.

As we come out of the pandemic and return to more normal operations, now is a good time for SMEs to review their structures and financial requirements, and to consider renegotiating their banking terms or even switching lenders.

Traditionally, complacency and the ‘hassle factor’ has made business borrowers reluctant to make the switch. The good news is that there is almost no hassle in switching nowadays and you could save your business a lot of money by negotiating more flexible lending terms.

Another factor contributing to a reluctance to change banks was the lack of viable alternatives, but the lending landscape has materially changed over the last 10 years with numerous lenders in the market.

Alongside the High Street names, there are a host of alternative lenders competing for your business, including the so-called challenger banks, peer-to-peer lenders, fintech specialists, as well as household names such as PayPal and Amazon.

This is good news for SMEs as there are more organisations willing to lend to you, offering sophisticated digital platforms to make switching quicker, simpler and less intensive. These new kids on the banking block also offer tailored financial support rather than an off-the-shelf product, which could suit your business better.

However, it’s only fair to point out that High Street banks have many strengths and often offer a wider product range – which means you have a better chance of being able to sort all your banking and lending needs under the one roof, which may not be the case with specialist lenders.

What is undisputed, however, is that alternative lenders are growing market share, so it makes sense to find out what they have to offer. If your business operates in a specialist marketplace, you may find it beneficial to approach a lender who has experience and knowledge of your sector, and as they will better understand the value of your products or services and be prepared to lend accordingly.

Even if alternatives are not for you, the fact is that their existence has made high street lenders sharpen their pencils – but, like car insurance and credit cards, their efforts are often directed at new customers rather than the loyal ones.

So it’s wise to do your homework and think about which type of lender is best suited to support your business. Sometimes fresh eyes can identify gaps or weaknesses in your application, something that might delay you getting the green light.

While the timescales for switching banks can vary, we have found that the majority of organisations can be switched over to their new lender within one month. I think that is a wise investment of time given the potential for a positive impact on your bottom line.

Craig Darling is a Partner, Head of Business Restructuring and Recovery, Gilson Gray