Forced out of business by his bank, one man's bitter tale

HARRY Lynch's company had survived two previous recessions. It was surviving this one, winning the daily battle for survival amid the cataclysmic downturn precipitated by the reckless actions of a few bankers.

After 30 years in business, the Broxburn-based engineering services firm had a strong order book. It had considered redundancies, but decided to stick by its staff.

Then one of his key customers fell into administration and defaulted on a debt. As most businesses would, Lynch turned to his bank to help keep his firm afloat.

But Bank of Scotland refused to grant extra funding to the £1.5 million turnover business. As a result, Harry Lynch & Co, now unable to meet its own debts, was forced into liquidation, with the loss of 21 jobs.

Lynch's story is not unique. Across Scotland, businesses, regarded until now as rock solid, are having similar experiences.

And last night business leaders warned that Lynch's case proved their claim that financial institutions were failing to pass on the benefits of emergency government funding schemes to boost lending to small firms.

Harry Lynch & Co had fallen into difficulties late last year after a key client – developer MCA Homes – was taken into the hands of administrator Zolfo Cooper, ironically at the behest of Bank of Scotland.

The housebuilder, for which Lynch had carried out roads and drainage work for a development of flats in Livingston, owed the company £97,000.

Lynch had a £50,000 secured loan with Bank of Scotland, taken out in 2004. He had kept up with repayments, reducing the figure to around £40,000 by the time of MCA's liquidation.

He first approached Bank of Scotland, his banker of five years, immediately after MCA Homes collapsed in November.

Lynch, 61, explained: "I asked them for some short-term funding of £50,000 to help our cash flow while the business recovered from the hit we took from MCA Homes' administration, but they said no."

Lynch, who claims that at the time of his company's collapse, he had an order book for two months' work, tried to trade through the problem.

In January, when the UK government's Enterprise Finance Guarantee Scheme was announced. He thought he had been handed a lifeline and approached the bank again.

He said: "At that point, we were not desperate for the money – but I was told then that it was too early – that they (the bank] had not started using the scheme."

Two months later, he wrote to Bank of Scotland, now part of Lloyds Banking Group, again and was told that it would not lend to companies linked to the hard-hit construction industry.

By this time unable to pay bills to his own suppliers, Lynch's company was placed into liquidation with KPMG after racking up a £24,000 debt to builders' merchant PDN.

Clearly shaken by his experience, Lynch commented: "I am just devastated. I have built this company up over 30 years and it is all gone. They could have lent me the money to keep me afloat through this – and 21 people would not have lost their jobs.

"It just seems so ironic that we were forced into liquidation because of money owing to us from a firm that Bank of Scotland had themselves placed into administration in November."

A spokesman for Bank of Scotland said: "Lloyds Banking Group is one of the most active lenders under the EFG, accounting for around one quarter of all loans offered to SMEs under the scheme. We deal with all customers on an individual basis."

A spokeswoman for Business, Enterprise and Regulatory Reform department, which administers the fund, said the EFG was aimed at companies which did not have sufficient security to obtain a commercial loan.

She added: "We would encourage viable businesses that find themselves at the margins of commercial lending to approach their lender about an EFG loan and we are working with banks to help improve access to finance for small and medium sized firms."

IoD warns of further collapses unless banks ease lending rules

BUSINESS leaders yesterday warned that many companies across Scotland were facing similar problems to Harry Lynch & Co after failing to obtain funding from financial institutions.

David Watt, director of the Institute of Directors Scotland, said: "The banks are packing away bad debt with the government and asking them to take on some of their risk, but the benefits of the incentive schemes do not seem to be filtering down."

He warned that a large number of firms could collapse as a direct result of the banks' refusal to lend.

Watt added: "The feeling is that the banks are still looking for normal guarantees and criteria to lend this money."

Latest figures from the government's department for Business, Enterprise & Regulatory Reform (BERR), show 2,850 businesses have been offered loans totalling more than £270 million.

The scheme, launched at the beginning of this year, provides banks with £1 billion of guarantees to support to £1.3bn of bank lending.

The money does not come directly from the government – but 75 per cent of a loan granted under the scheme is guaranteed by BERR. The bank would be reimbursed by that amount if the firm it lent to collapsed and failed to repay its debt.

It is understood Bank of Scotland applies the same tight lending criteria to loans offered under the enterprise finance guarantee (EFG) as it would to ordinary commercial loans.

BERR yesterday told The Scotsman EFG was aimed at firms "at the margins of commercial lending" – and who cannot get an ordinary bank loan.