Practice Notes is the title to a new commentary by FD . Our daily interaction with accountancy firms and SMEs will shape the content , which we hope to publish here on a regular basis, yet to be determined but probably around once a fortnight. Comment is welcome via our Twitter address @advice4business

WIth interest rates now firmly back centrestage I am wondering how many accountants discuss with their clients how their business will be affected by Bank of England decisions , either impacting directly on loans or indirectly through the spending power and confidence of their customers. Although talk is currently around whether they will reduce yet further, the lower they go the greater the impact of an increase when the day comes. In some respects it is a “phoney war” , the calm before hostilities break out but nonetheless a period where civilian defence procedures and army manouvres are repeatedly rehearsed.

Where rates are at the historical average of , say 8% , a movement of 0.25% was in effect an movement of 3% and not in itself cause for concern on the confidence index but when they go from 0.25% to 0.5% not only is it a rise of 100% (although in reality as most people pay base plus 3 or 4 percent the impact is dampened) it signals a new era in policy and the impact on confidence cannot be overstated. This is something misunderstood by SMEs and now is the time for having the discussion with your clients and a note on file will not be something you regret. If ever there was an opportunity for proactive client support this it.

Formations Direct, leading UK company formation agents, has published results of its recent survey on bank lending amongst SMEs.

• 70% of those refused at the initial stage expressed surprise at the decision
• 64% found the whole process difficult
• 62% achieved an early outline approval
• 58% received their loan within 3 weeks of applying
• 69% of those rejected after formal application expressed surprise at the refusal
• 54% did not require to put up their house as security
• 70% of formal submissions were approved
• 57% said the terms & conditions were exactly as those initially discussed
• 49% felt that the rate of interest was fair

For all we hear about Bank of England funding to lend to SMEs it is clear that there is a lot of work to be done by the banks to provide a customer friendly service. An expectations gap looms large and as long as there is a perception that service is poor, decision making opaque and rates are unfair they will struggle to win over SMEs.

Conditions are surely ripe for a new SME bank to start-up and grab a chunk of business by providing a decent service with fair rates of interest. The only surprise to come out of this was that the numbers requiring their house as security wasn’t higher.