Why family businesses struggle with bank loans

Why family businesses struggle with bank loans

When it comes to long-term goals, family businesses generally have fairly ambitious growth plans.

Partner, Global Head of Family Business

KPMG in France


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A quarter of those surveyed in our KPMG Family Business Global Survey said that acquisitions are their most important funding need, 18 percent said expansion into new geographies, and 16 percent said new sectors.

These figures suggest that family businesses would be more adventurous and expansive if they were better able to tap into sources of funding that were appropriate to their needs.

How important is the current economic climate in all this?

Bank debt is by far the most popular method of financing for family businesses, with 30 percent of respondents saying this is the most important source of capital for them, followed by financing through internal profits, cited by 28 percent. However, nearly three quarters of companies state that the current economic climate has had an impact on their ability to finance their projects through bank loans.

In fact, 36 percent of the survey participants said they felt the current economic climate had a significant impact (9 percent said “very significant impact” and 27 percent said “significant impact”). The largest individual portion – 38 percent – said they felt it had “some impact”, while the remaining 26 percent said “no impact”.

A British head of finance reports, “The business needed financing during the recession when bank financing was rather difficult and sparse, so we approached a few investors who were well known to the family to provide financing.”

Strict disclosure clauses cause concern

In many regions banks have reined in their lending since the crisis and a major challenge for family businesses – many of which place a high value on discretion – is the detailed level of information many banks now require when considering loan applications. As one respondent from Singapore notes: “Our business strategies are well documented and our plans for success are listed step by step, however banks do not necessarily always offer finance easily as they expect to know details like turnover, which we do not like sharing.”

An Indian CEO also shares concerns about bank loans: “Obtaining capital from the banks on an overall basis has been positive, but there were times when we’ve had obstacles in presenting our financial data and other documents leading to longer time procuring the amount affecting the performance.”

In a similar vein, an executive in Japan says: “Banks have started asking for documents that we keep confidential and feel are personal as it is a family business […] we therefore try to find alternatives before deciding on a bank loan.”

The desire for leniency

Some respondents also feel that banks often do not understand the unique characteristics of family businesses and therefore fail to appreciate some of the sensitivities inherent in running a family-owned company.

“Banks are too rigid and go strictly by the book, not considering any emotional sentiments that may be attached to the business. We have had too many failed transactions with them as they expect evidence for everything.” Family director, Canada

The above comments on forced disclosures and perceived rigidity illustrate that family businesses do see themselves as private and can be inward looking. These businesses could benefit from the independent insights that high net worth individuals (HNWIs), among others, can bring to a business.

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