Spend-and-grow directors now ‘forced into hoarding’

Advisory firm Grant Thornton warned that many firms are still concerned about access to finance, as the economy struggles to grow.

Over three-quarters (83 per cent )of Yorkshire finance directors surveyed by Grant Thornton said that bank lending policies were encouraging businesses to hold on to cash reserves.

Jonathan Riley, the Leeds-based senior partner of Grant Thornton in Yorkshire, said: “There are businesses that have ridden out the worst of the recession, and are thriving.

“Ordinarily these firms would spend and grow, but the lending climate is forcing a hoarding mentality that further polarises the fortunes of business.”

The survey also showed that two thirds of finance directors had considered changing banks in the last year, and one third had changed their strategy to be less reliant on bank funding.

Mr Riley added: “Directors are caught between a rock and a hard place: if they pursue growth strategies and spend their reserves, banks won’t then support their future needs.

“Whether this is reality or a perception, it’s clearly a very poor situation.

“It also says a lot about a breakdown in trust that may be emerging between corporates and the banks.”

Over two-thirds (66 per cent) of finance directors quizzed by Grant Thornton said they were facing challenges with managing excess cash, and ensuring it was not depreciating at a time of high inflation.

Mr Riley added: “With growing uncertainty about the stability of once blue-chip financial institutions, rising inflation and interest rates flat lined, cash is a costly asset to hold.

“Making cash deposits work for three per cent rather than just one per cent can dramatically reduce the impact of inflation on the bottom line, and we are seeing an increasing focus on smart cash management in many businesses, something that might at first seem surprising when we hear so much about businesses that struggle to get funding.”

A spokesman for the British Bankers’ Association said yesterday: “Businesses are currently borrowing around £664bn from the UK’s high street banks.

“Independent research which talked to 5,000 SMEs (small and medium-sized enterprises) found that the major brake on borrowing was not bank lending but continuing concerns about the wider economy.”

The spokesman added: “The overwhelming majority of businesses which approach banks have their credit applications approved and where they were declined the reasons are mostly to do with lack of financial skills and plans or poor credit histories.”