With the debate about UK interest rates hotting up, spare a thought for this country's beleaguered small to medium sized enterprises (SME's) with fewer than 150 employees. In his last Budget, Chancellor Norman Lamont bowed to some of the financial needs of small firms by tinkering with the uniform business rate, inheritance tax on family enterprises, and VAT. However, in the current climate, cash-flow constraints are driving thousands to the wall.
Are the banks and their interest charges to blame? The conventional wisdom is that the banks, being the rich but miserly nemesis of small firms, will need reform of their lending practices more substantial than their glossy codes of practice allow. But banks themselves are under pressure. They only look mean to the individual entrepreneur because they are--by contrast with the more tailored business they do in the mainstream corporate sector -- in a wholesale game with small firms. They are also lending at a time when vigorous cost controls and branch closures make delivering their advertised promise of "personal service" very difficult indeed.
Anyway, the evidence is that what the typical small firm really dislikes about the banks is their ignorance of its industry and its customers, rather than their interest charges. If banks do need reform, then, it should focus on a more rounded education of their small firms managers in marketing. …