I'm aware that I have banged on a bit about my views on Government's rhetoric on 'forcing banks to lend' yet the message from media and Government continues to be confused in the extreme. This article in the Telegraph doesn't break any new ground, but it is unusual in one respect, which is that Angela Knight, chief executive of the British Bankers’ Association touched on the hidden topic - that of risk or - to put in in more raw terms, bad debt.
We all love SME business - they are the lifeblood of our economy and are also proving very cuddly to the media - but, let's be absolutely clear, the risk of bad debt in lending to small business is always present - and is significantly increased in economic downturn; there are 2 reasons why banks are failing to lend - and spite isn't one of them. The first reason is that they simply lack the resource to do so, the second and more enduring reason is that they are in absolute dread of bad debt - which can quite easily push them back to illiquidity.
Bad debt from customers is a real problem to business, but a problem that can be mitigated to some extent. To a lending institution it isn't an external or secondary risk, it is at the very core of lending and pricing policy. If you read the legal section of any business forum or journal, you will often find advice being given to business owners on how to avoid paying out on personal guarantees - it is entirely undestandable that people want to keep what they have worked for but- let's be clear - this isn't about bankers' bonuses or profiteering, the effects are passed directly to small businesses in both price and underwriting.
It is impossible to have a coherent discussion about lending without talking about bad debt, so please - we are all big grown-ups here - lets not pretend it doesn't exist or hide it behind the curtain with the elephant - if you are going to talk about bank lending, lets actually admit what the issues are!
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