The Federation of Small Businesses and the British Chambers of Commerce have teamed up to investigate the state of the banking industry’s lending practices and small to medium enterprises.

The Business Banking Insight programme (BBI) will ask micro companies and SMEs to share their experiences to provide insight into the best banking services available across the UK. The first set of results will be published in May.

Speaking to IBTimes UK, FSB’s National Policy chairman Mike Cherry reveals how a lot needs to be done to get the banks lending to SMEs again. The swaps scandal, he says, may be part of the problem.

Q: What are the key challenges facing SMEs today?

MC: While our first quarter results showed that SME access to financing is easing, partially helped by the government’s Funding for Lending scheme, a lot of our members are still being turned down.

Therefore, we have to look at the fundamental issues from the survey and give more transparency over the problems they are facing.

It’s not just about current accounts and overdrafts; it’s a rounded view on all types of services businesses need from banks, such as export finance.

We will gather the experiences and rank the way banks are providing these services.

Q: The Tomlinson Report allegedly lifted the lid on SMEs being engineered out of existence by the Royal Bank of Scotland (although the bank vehemently denies this). Are the experiences that Lawrence Tomlinson reported the same of those of your members?

MC: Let’s take a step back quickly. The people who have been affected by the mis-selling of derivatives, which is part of that report, are at last seeing redress coming back to them.

If Tomlinson’s allegations are proven correct that could be even more damaging to the banks and, coupled with the swaps scandal, it could led to a serious need of restoration of trust. However, until we know from the various investigations into the report and allegations, it’s hard to make a comment either way.

However, in our report we will be looking at how the banks were sold interest rate swap agreements and the progress in how this scandal is being addressed.

Q: Concerning the swaps scandal, you say your members are starting to receive redress but is it too little, too late for some, as their legal rights become time barred and the review comes to an end?

MC: We have already raised our concerns time and time again to the regulator and government ministers about the slow progress.

There are thousands of businesses out there that are yet to receive offers and thousands who are waiting to hear about consequential loss compensation.

This is why we are pushing for more transparency from the banks so we have a faster way of identifying and tackling problems. We are pushing as hard as we can to get redress for our members.

Q: How entrenched is the swaps scandal to the lack of financing for SMEs? Do you find members are concerned or scared about broaching the subject because of fear of bank lending retaliation?

MC: I think there is always a concern that when you query something with your current lender, you worry about how that request is going to be answered.

Again, due to the lack of transparency and credit scoring, we don’t know how much this aspect affects lending to SMEs.

Even those who have received redress, following the mis-selling of derivatives, many want to remain anonymous for fear of a change in their relationship with their bank.

Meanwhile, this is why it’s important to have competition within the banking industry and lots of alternative avenues for financing as Britain’s main banks become more risk averse.

More competition in banking is the best way to go.

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