The House of Commons Treasury Select Committee has heard of the collapse in trust between businesses and their banks in modern times, as the banks simply “want their money back” when difficult economic circumstances develop.
In an evidence session on April 29th 2014, Peter Hollis of Hollis and Co spoke of how trust has been eroded in the modern age, when businesses no longer view their bank as being there for them in tough times.
He also said that he does not believe there is any meaningful competition between the four leading banks, which places SMEs in a ‘Hobson’s Choice’ situation when seeking financial services.
Mr Hollis said: “I think there’s been a significant erosion of trust in the banking sector. I think much of that is due to banks wanting their money back, or part of their money back, when times get tough.
“So when the business is under most pressure, the bank wants to withdraw some of its funding; I think many people would identify with that.”
Chris Lane, partner at Kingston Smith, echoed Mr Hollis’s views, suggesting that at the onset of the recession, some of the banks were facing more difficult trading conditions than their business clients, leading them to tighten their trading considerably.
Ronel Lehmann, chief executive of Lehmann Communications, was also giving evidence – and stressed that while his family has a history of working in the banking sector, he is not connected with the differently spelt Lehman Brothers.
He spoke of his own experience when Barclays withdrew a £200,000 working capital facility from his business, saying: “It was devastating.
“They sat on my security and my wife’s security over our family properties … for a year having withdrawn the working capital facility, so it was terrible.”
Mr Lehmann said that the many problems caused by this could have finished off his business, without the support of his shareholders, family and friends, and damaged an acquisition he made at the time as he did not have the working capital to put into the acquired business.