Are banks failing Scotland’s SMEs when it comes to financial advice?

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SMEs struggle to secure finance as advice gap emerges – specialist rather than generalist approach needed, suggests Close Brothers

Only a fifth (19%) of SMEs say banks’ advice always meets their needs, highlighting a failure of many lenders to cater for SMEs’ individual circumstances, according to a new report published today by Close Brothers Group.
The UK merchant banking group surveyed over 1,000 SMEs owners about the changing needs throughout their growth stages, showing that the individual requirements of SMEs are not being met effectively.
SMEs, who account for 99.9% of all private sector businesses, play a vital role in the UK’s economy, and many feel they do not receive a tailored service from their lender when it comes to their stage of development, and their sector.
Nearly half (46%) of SMEs have experienced barriers in accessing finance, with a further quarter (24%) being turned down completely when they are looking to grow.
Of the SMEs who experienced barriers in accessing finance, over a fifth (22%) stated that lenders didn’t understand their specific needs, with a further quarter (25%) saying that their lender did not understand their sector at all.
The report also found that generalist lenders, who account for 90% of lending to SMEs, often cannot meet these varied requirements of SMEs for funding at differing stages of their growth.
Close Brothers says this poses a significant challenge for the SME sector, especially as a large number of SMEs (38%) only turn to high street banks for information and advice about the most suitable types of finance for their business.
As well as the lack of guidance received by SMEs as they grow, there is a clear issue with long-term business planning, with only 28% of SMEs planning their needs for finance more than a year in advance, while 64% only plan up to a year in advance. 8% of SMEs do not engage in planning at all.
Adrian Sainsbury, chief executive officer, Close Brothers Commercial Division, said: “Smaller businesses do not have the same access to and experience of the myriad of options that are available to them as larger companies.
“It’s clear that the traditional sources of advice for many are no longer sufficient. Many do not feel their banks are taking into account their sector and specific circumstances, meaning they are not receiving the level of support they need to secure the right products and funding for the future.
“Given the importance of SMEs to the economy, it is vital that these companies are properly understood by the mainstream funders they turn to for guidance, whether knowing the specific financial needs of that business in a particular sector, or identifying the type of lending that will best suit their business at any given time.
“A specialist, rather than a generalist, approach is clearly beneficial.”

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