What is an SME?

Most articles regarding “lending” by Banks refer to SMEs. BUT WHAT IS AN SME?

The definition of an SME (small and medium enterprise) has been described as:-

Has fewer than 250 employees.

Has either a) an annual turnover not exceeding circa £24m or b) annual balance sheet total not exceeding circa £16m

25% or more of the capital or voting rights are not owned by one enterprise, or jointly by several enterprises falling outside this definition of an SME.

The problem with our Politicians and Banks is that they require to redefine the meaning of a Small Business. In the UK small business is BIG BUSINESS.

The majority of small business should in my opinion be defined as MICRO BUSINESSES and considered in that light.

Central Government is said to be “encouraging” the Banks to lend but it is not certain that that has greatly influenced the Banks. The Government is right to identify the issue and urge banks to do more – but it cannot just snap its fingers. David Kern, Chief Economist at The British Chamber of Commerce argues the banks haven’t lost much as a result of SME lending in the recent crisis; the last time they did was in the early 1990s.

There is little evidence that banks are willing to relax credit criteria, even if they are forced to increase lending. The first criterion for banks is to get their money back and the second is to get a return on it.

Small Businesses asking for funding often do not have a Plan B for when Plan A to pay of the loan does not work out. Banks are not there to bail out failing businesses. They want to see a proper business plan and this is where professionals such Bill Christie at CER Business Finance are so important to ensuring that the relative information is collated and presented to a suitable lender.

Banks also need to up their game with a more acute understanding of the needs of Small Businesses and that means restoring the long neglected role of relationship managers. It is claimed that banks no longer have managers knowledgeable enough to make decisions on lending to a profitable business, and that their successors exaggerate the risk simply because they are less experienced./ In short business-savy bankers have been replaced with box-tickers.

In many instances The Small Business is faced with “telephone relationship “managers” This is NOT the way to build a customer – banker relationship .

Face to face communication to understand the business, their working environment, the competition and the financial tools to assist that business grow – that is what Banking should be.

Business is about risk-taking but the difference is in reasonable risk and reckless risk. Targets only help in terms of creating the right psychology. Beyond that, we need to persuade banks to create an infrastructure of managers – managers who understand the needs and requirements of MICRO Businesses.

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