Professional Engineering

One of the benefits of producing an engineering magazine is that you get to meet lots of engineers. Some work for large multinationals and have their own set of concerns around life in a global organisation. Others run small businesses, and their main worry tends to be day-to-day survival.

From speaking to engineers within SMEs, there is one nagging issue that crops up time and time again – their relationship, or lack of it, with their bank. At the sharp end of business activity, the strength of this relationship can turn out to be a matter of life or death.

What’s clear, from anecdotal evidence and from industry surveys, is that two years on from the near-collapse of the financial sector, many small firms are still encountering a rise in the cost of finance, while others have seen access to new lines of credit disappear. Restricted credit means that some firms have to source alternative finance solutions to guarantee cashflow, which are invariably offered at higher rates and more onerous repayment terms. Only last week research by Siemens revealed that 73% of UK industry and manufacturing firms expect the cost of credit to continue rising in 2010. It showed that 63% of firms are actively exploring alternative financing tools as a result of tight credit conditions in 2010.

The effect of these financial factors on individuals running small engineering firms can be intolerable. Difficulty in arranging finance often leaves firms in a state of limbo, with capital investment projects the first to be scaled back. I’ve lost count of the tales of owners having to work ridiculous hours to keep their company afloat, with the subsequent health and work/life balance implications that brings.

The latest banking figures show that new lending to small firms across Britain in 2010 remains stubbornly flat. If you look at it from a historical perspective, lending is way down on what it used to be. There is no doubt that a substantial improvement in credit conditions for businesses is taking far longer than hoped for to emerge. And despite some well-meaning rhetoric by the coalition government and the previous administration about improving matters there simply appears to be no quick fix.

This is a situation that cannot be allowed to continue. One obvious move in the right direction, which wouldn’t require much of an undertaking, would be to give businesses the right to appeal against decisions of the high street banks they deem unfair. That would salve the sense of injustice that many smaller firms feel when they are knocked back in their credit requests. There also needs to be greater impetus from politicians to force banks to start lending more.

The future health of the much-hyped “rebalanced economy” depends on restoring trust between small engineering and technology firms and the banking system, as turning ideas and innovation into business growth requires a reliable financial partner. Is it really too much to hope that such a mutually beneficial relationship will emerge once again?