Memorandum submitted by the British Chambers of Commerce




1.1 The British Chambers of Commerce (BCC) welcomes the chance to respond to the Business and Enterprise Committee's request for evidence on financial support to SMEs. The BCC is the national voice of local business; a national network of quality-accredited Chambers of Commerce, uniquely positioned at the heart of every business community in the UK. The BCC represents over 100,000 businesses of all sizes across all sectors of the economy that together employ over 5 million people.


1.2 The current economic climate is causing great difficulties for small and medium sized businesses in particular. Difficulty in accessing credit lines provided by banks is by far the largest problem and is manifesting itself in several different ways. The removal and tightening of credit conditions appears to be both indiscriminate and arbitrary. This problem needs to be addressed to get the wheels of the economy turning again.


British Chambers of Commerce Response


2.1 Over the last two months, the BCC has been gathering evidence from the Chamber network on the experience of their members with regard to access to credit. The following have been reported across the length and breadth of the country:


Banks refusing credit lines to businesses that they have had a relationship with for decades

Increases of interest rates on overdraft facilities.

Terms of credit facilities being altered mid-term.

The charging of interest on the full amount of an overdraft facility, irrespective of the actual amount being used in the overdraft.

The indiscriminate removal of credit lines.


2.2 A specific example that neatly sums up the problems was submitted to the BCC by a business who is a customer with a major high street bank. They stated that they had had no previous problems with access to credit or the repayment of it. Further to this, their custom had been highly sought after by other banks. The following is a comparison of credit facility renewal at their bank:


This years renewal Previous years renewal

Fee requested 25,000 0

Term 6 months 12 months

Rate 3% over base 1.5% overbase

LTV 72% up to 76%

Overdraft 0 100,000


2.3 Further evidence from the Chamber network comes from the London Chamber's October business leaders survey, they found the following results:


One-third (35 per cent) of businesses said that they had experienced increased conditions and/or charges to their credit streams.

Just under a quarter of businesses surveyed said that they were finding it difficult to access credit.


2.4 Furthermore, the decision making process for granting access to finance has been taking longer. Several businesses have stated that decisions made on lending prior to the financial crisis were made over a relatively short time span. Now, however, the decision making process is taking far longer, largely because lending decisions are being referred to those at a higher level within the lending institution.


2.5 The sum of these problems is contributing to a severe loss of confidence in the banking system within the business community. One particularly worrying example given to the BCC by the Chamber network was that firms from their local retail sector will be withholding cash from their bank accounts over the Christmas period in the fear that banks will use it as an excuse to reduce overdraft limits.


2.6 It is important that the credit problem is viewed in the context of what it means for payment down the supply chain. Further evidence given to the BCC has been that payment times have been extended, with instances of large firms demanding discounts from previous invoices for continued future custom.


2.7 Following events within the global financial system and previous loose lending practices, it is inevitable that the cost of credit will be more than 12-18 months ago. However, it is important that an arbitrary approach by banks to improve their balance sheets is avoided. The creation of the Small Business Finance Forum is a step towards improving the situation, but it remains to be seen how effective this dialogue between banks and businesses is.


2.8 To a lesser extent, there have also been examples of issues surrounding credit insurance. One business offered a detailed, typical example where they have experienced a number of limit withdrawals as insurers have reviewed their exposure to geographic markets/industry sectors/individual buyers. The main areas they found affected were Ireland and the Baltic States, with a smaller incidence in other parts of Europe.


2.9 The recent Pre-Budget Report contained several measures that the BCC is supportive of and which have tried to address the problems surrounding credit. The Small Business Finance Scheme is a welcome move, and the BCC had suggested a similar policy proposal, but more flexible so as to be applicable to all forms of small firms finance.


December 2008