This is the second of two articles that present the findings of a survey I had conducted, to ascertain the mood of SME bankers, their reading of the current situation, prognosis for the short term, their fears and concerns.

What emerged clearly was that a pall of gloom has descended upon lenders, brought on by a severe crisis of faith in their clients. Bankers responded rather vehemently, as to just how much they mistrusted audited numbers, business models and, indeed, businessmen. This article discusses some steps that could be taken by business owners to deal with the situation.

The first set of five questions in the survey dealt with the state of business, reliability of audited numbers, faith in auditors and businessmen, and so on. The second set delved into a little more detail — on key issues that disturb SME bankers.

I asked bankers to rank what annoyed them most about SMEs, giving them a common set of gripes to choose from. The results — from most to least annoying: No. 1 was the complaint that SMEs demanded too many exceptions or deviations from policy and/or established credit lines; second was that SMEs constantly delay submission of information requested.

At number three was the extremely casual attitude prevailing in meeting any sort of commitment. At four was that SMEs communicate very poorly and never on time, especially where bad news was concerned.

All this has to do with poor behaviour and planning. Business owners must realise that while they deal with only a few banks, each bank relationship manager perhaps handles 30 clients. I think the implications are clear. It does not take much to “professionalise” your dealing with a bank to make life easier for your RM.

Its simple really, you help him, he helps you.

Question seven asked what percentage of accountants/finance managers of SMEs did bankers think were competent to handle lenders. A staggering 94 per cent thought that only 60 per cent of finance/accounts people they encountered were adequate.

Poor credibility

SMEs mostly employ accountants, not qualified finance managers. Someone who is well organised, has reasonable communication skills and a good work ethic is more than enough — a heavy duty CFO is not required. In saving on costs in employing the right person, owners are paying a heavy price by having someone with poor credibility deal with bankers.

Owners also tend to favour and reward loyalty and honesty ... at the cost of competence. They would do well to ask bankers what they thought of their finance people and take that opinion seriously.

The next had to do with the “business loan”. On being asked what they thought of SMEs who had taken expensive business loans, 56 per cent thought it was a bad sign and the remainder thought this could be justified. Invariably, explanations provided by owners on why they take loans that cost around 18-20 per cent are weak.

Owners take note — the presence of business loans in a balance sheet does not inspire confidence. We have many customers saying they had no choice but to opt for an usurious business loan, purely because the process was quick with (almost) no questions asked. The bitter and oft repeated complaint was that obtaining appropriate credit facilities was terrifyingly difficult and time consuming.

High risk

However, going for the soft option comes at a very heavy cost indeed.

Question nine asked what bankers felt about owners who made investments into unrelated businesses — 57 per cent thought it was unacceptable and 43 per cent thought it acceptable if owners had a successful track-record in such investments. Withholding judgement, but making a contextual statement, one can say that in reality, bankers consider SMEs who diversify as posing a high risk for various reasons.

Owners need to think ahead and structure their investment into an unrelated business carefully, addressing the concerns of bankers as well.

During the last 12 months, a permanent feature on the long list of bankers’ concerns is whether a business owner has enough “skin in the game” to stay on or whether they would run in the face of a serious business problem.

Question 10 therefore asked how critical it was for SMEs to have physical assets in the UAE — 81 per cent felt it was extremely important and 19 per cent said it was fairly important. Which in effect means all bankers are saying it is a critical factor.

Balance sheet

Why? Because it demonstrates financial and long-term commitment to the business. This is considered a mitigant to “skip risk”.

Again business owners need to address this, as this consideration will only gain more not less weightage in the future, and requires proper structuring of the business and balance sheet.

There is no magic wand or set of easy answers to manage this situation. It is what it is and owners need to take heed that there has been a serious shift in thinking and things are not what they used to be.

Just as banks are changing their credit evaluation standards, owners need to wake up and take steps to improve their own credibility with banks.

The writer is the Managing Director of Vianta Advisors.