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Across Europe, niche lenders are providing funding for SMEs that are struggling with larger banks. Liz Salecka examines whether this type of initiative could help the Channel Islands


EGULATORY initiatives, such as the Basel III framework, are expected to force banks to rein in their lending, with SMEs – already impacted by banks’ stronger focus on large


corporate clients – likely to be among the worst hit. According to a recent report by ratings agency Standard & Poor’s, the new regulations, which require banks to beef up their capital ratios from two per cent to seven per cent, will place greater pressure on banks’ balance sheets – and SMEs may well bear the brunt. However, across Europe, a new breed of SME financier is already emerging to fill this gap. In the UK, new retail deposit-generating banks, such as Metro Bank and Aldermore, have been set up to lend money to SMEs and consumers, while the British Enterprise Bank, spearheaded by City financiers, is raising £100 million from institutional investors, and possibly retail sources too, to commence business as an SME lender in 2011. Alternative investment funds are also getting in on the act, such as BLM Partners, which was founded last year to provide loans to SMEs across Europe. “Basel III is yet another reason why we are pessimistic about liquidity becoming available for SMEs. This is a structural issue that will take years to sort out,” says Jason Carley, Partner and CIO at BLM. “There are many ways for banks to make money from large corporates.


SMEs, which generally only borrow smaller amounts, are not as profitable for the large banks. We see a big gap right across Europe where SMEs are concerned. It is very difficult for them to access medium-term financing of two to three years to invest in their businesses.” Bank lending to SMEs in the Channel Islands has already been hit by the financial crisis, with higher margins, tougher credit terms and a heightened emphasis on companies’ trading records. “There have been signs of a cutback in lending – largely because all the banks have tightened their credit criteria,” says Phillip Marr, Director of Banking at the Guernsey Financial Services Commission.


It is a sentiment that is echoed by David Warr, a member of the States of Jersey Small Business Council, although he does feel the situation is not as bad as it was at the height of the financial crisis. “Over the last 12 months, things have eased up a bit, and the situation has been less difficult than the previous 12 months, when banks almost stopped lending to small businesses altogether,” he explains. “However, what has changed dramatically is the reluctance of banks to make decisions on the ground – everything is being referred back to Head Office, and as a result, decision-making on loans takes more time.”


“In general, funding is far more difficult to find than it was a few years ago,” says Sean Pritchard, Director of Business Creation and Growth at Jersey Enterprise.


December 2010/January 2011 businesslife.co 23 ➔


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