It has been a while since I was in front of a bank asking for money, but, last week I hit the road again and had a chat with one of the big bank holding companies regarding lending to small and medium sized enterprises. (SMEs).

I was actually surprised at what I heard. We’ve all been hearing in the media how credit has dried up, and it certainly seems like that in capital markets, but, the banker I was discussing this with assured me that lending to SMEs continues on at a similar pace to previous years. What was more interesting was that he pointed out lending to larger companies was not on the bank’s agenda. Why? I was curious. Lending to big companies is a lot of money in one shot. If the company goes bust, that has a big impact on the bank’s balance sheet.

Well, lending to lots of small companies that go bust will have the same effect, but, the government here has instituted quite a few plans and programmes for helping SMEs get bank financing, and fair enough too, I should say. As all us SME entrepreneurs know, most of the jobs created in an economy are due to small companies, and big companies only became that way because they just happened to be very successful small companies once.

Anyway, I diverge. In addition to the METI sponsored SafetyNet for companies affected by recessionary drop off in demand, or bankruptcy of a large customer or financial institution, local governments have a wide variety of guarantee programmes that take up the slack where the Credit Guarantee Corp (CGE) cut back to only a 70% guarantee of a loan principal meant the banks were hesitant to lend money to good credit risks.

As we all know, there are not many local financial institutions with truly excellent credit scoring models, and even the good ones can still be fooled by creative accounting. Business loans (ie zero guarantee from 3rd parties) are still being advanced by the banks. It all depends on how you speak to your main bank, but this is a topic I will address on another occasion.

So, I like to see through the words and understand what is truly going on. The banks aren’t doing all this for the greater philanthropic good, there is a hard nosed business reason for it. As large companies are not covered by government or agency related guarantees and the SME sector is, of course to the banks, the ultimate credit behind their loans is a government entity somewhere, even if that entity turns around and demands a guarantee from you the representative director, as they all do ultimately all the time.

In times like these, lending to the government, and getting brownie points for it by being able to claim that they are assisting SMEs, who wouldn’t.

Go and check things out with your local bank.

Good luck.