Opinion: Why banks and lenders must signpost turnaround to SMEs

With restrictions starting to relax and the summer holidays nearly here, it is possible to think that the worst of the pandemic is behind us.

Although we all hope this is the case, for many small and medium-sized enterprises (SMEs) they are only beginning to come to grips with the effects of Coronavirus. For thousands of businesses, the financial impact will take months if not years to put right, with it being not possible for some to return to a healthy financial state and others unable to get to a stable footing without external expert help.

Because of this challenging financial outlook, it’s important that financial services firms understand how to best support their business customers. Part of this will be to signpost to third parties when it is appropriate to do so, including turnaround professionals.

With this in mind, the Institute for Turnaround (IFT) and the Lending Standards Board (LSB) have partnered on a report looking at the important role that turnaround plays in supporting firms in difficulty.

Successful turnaround means returning the business back to profitability and a position where it can continue to grow into the future. Without the input of turnaround at the right time, it is possible that a firm in difficulty will continue to struggle, potentially until it is too late to put in place any measures to halt its decline. For this reason, it is vital that banks and lenders understand how to signpost to turnaround professionals when a business customer could benefit from their input.

Ultimately, effective signposting to turnaround could have a huge impact on a business customer. Indeed, it could well make the difference between that SME staying in business or failing. This is why it is important to explain both turnaround’s importance and how banks and lenders can effectively signpost at such a critical time.

Alongside the benefits of successful signposting, banks and lenders should also consider the risks of getting it wrong. Without proper governance, oversight, and training, it is possible that customers are either not signposted, are signposted inadequately, or the signposting is done in a way that creates risk for the firm and customer.

The process of reducing risk and improving outcomes goes hand in hand, as the steps taken to mitigate a risk - for example, by increasing oversight of the process - should lead to better customer interactions as quality controls improve.

Encouraging an environment where struggling businesses are supported and given the best possible chance of success not only benefits the customer but also the wider economy. This is especially the case now, with SME numbers critical to continued recovery from the recession.

Banks, lenders, and other financial service providers will provide support doing this in a number of ways. One should be considering their current approach to signposting and turnaround, to ensure it maximises the likelihood of good outcomes and customers getting the timely support they may need.