Coronavirus has laid waste to small businesses, and while some of the shuttered shops you see on every deserted high street will never reopen, many are still viable and, with the right support, can contribute to our economic recovery.
There is much the Government can do to help, and The Independent Business Network has recently published a wide-ranging set of proposals on VAT and other tax reforms. But the private sector must play its part too, particularly those businesses whose importance in restoring the prosperity of our high streets is underlined by their very presence on them: the great banks and building societies. They alone have the frontline contacts, resources, and the means to save the multitude of good, viable businesses, currently frozen in lockdown. The future of these firms, so many of which are for the time being technically insolvent, will be entirely in their hands.
In my career in banking I had the challenging experience of managing relationships with business borrowers many of whom had significant cash flow problems. Sometimes they were unable to see how they could meet their bills as they fell due, a prima facie sign of insolvency. The choice for the banks was simple and binary: regardless of their technical position, if they were fundamentally viable and cash flow positive before capital and interest obligations to the banks, we would support them, even rolling up or forgoing interest – and if not then, sadly, we had to call in the receivers.
That stark decision has no doubt been faced by many banks and building societies all over the country. The rule was clear, but equally the policy, leadership, skill, knowledge and resource required to make a well-informed decision in every case should never be underestimated. Now the banking sector has never been more important, both for businesses and communities. As the crisis continues to unfold, it will be down to the banks to make existential choices between keeping essentially viable firms going, or, tragically, regrettably but necessarily, letting it go to them wall.
Are they equipped for the job? Back in the day of “relationship banking” every corporate customer, even the smallest firm, had one or more managers within the bank who had a reasonably intimate understanding of their business. However, in today’s digital banking world the quality and depth of understanding of an enterprise you can only get through that human contact has been eroded. Yet every business is different, and it’s almost certainly the smallest and most vulnerable enterprises that are least likely to be appropriately considered by their lenders. And, as a result, many sustainable operations and their related employment will be lost.
Banks and building societies should invest in having trained individuals, backed by resources, to support small businesses. Profits in the finance sector are soaring, so means shouldn’t be a problem, but internal systems and management structures shouldn’t be allowed to get in the way. Protecting the high streets will shore up defences against further uncertainty. Banks need not look far back in their histories to see how volatile times can lead to significant unexpected losses: one of my employers found the loan provisions needed multiplied by fifty times year on year due to a setback in house prices – a not impossible scenario in the near future.
The Chancellor will no doubt pay appropriate heed to the IBN’s wide ranging proposals. It’s now up to the banks and building societies, if they haven’t already done so, to organise themselves to be the saviours of their high streets. It’s their parish and they must step up to the mark.
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