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Is bank finance getting lost in translation?

New research exposes a major disconnect between banks and small-and-medium-sized enterprises when it comes to securing finance.

A new research report by academics from the University of Surrey and the University of Greenwich has revealed the lack of understanding that banks and small-and-medium-sized enterprises (SMEs) have about each other’s needs and processes.

Titled Bank finance – lost in translation, the report was commissioned by top 20 chartered accountancy firm Kingston Smith LLP and reveals a number of key misunderstandings between banks and SMEs that can impede the latter from attaining financial support.

Presenting the findings of face-to-face interviews with the senior lending policy makers at five major and challenger high street banks, as well as interviews and focus groups with SME owner/managers, the report demonstrates that SMEs are often blind to banks’ lending criteria. Indeed, the majority of SMEs regard these criteria as a ‘black box’, about which they have scant knowledge.

The report sets forth a series of recommendations to banks to help bridge the divide, including providing clear details of their loan criteria to SMEs; outlining how different factors, including credit history, will impact upon their decision making process; and providing clear, tailored, constructive feedback on their loan decisions.

In turn, SMEs are encouraged to prepare realistic business plans and seek expert feedback before they are submitted; to be aware that banks’ lending portfolios will focus on different sectors at different times; and to demonstrate financial acumen over a number of years, among other recommendations.

Professor Mark Saunders of Surrey Business School, who co-led the research with Professor David Gray from the University of Greenwich, explained: “Our research findings highlighted the need for clearer and more detailed information flows between the banks and SMEs. Whilst SMEs need greater clarity about the process by which banks make their lending decisions, they also have to keep in mind that loans are made on a commercial basis.”

A full copy of the research report, which contains further key findings and recommendations, can be found on the Kingston Smith website.

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