Bank write-offs to unincorporated partnerships on way down

Bank write-offs of loans to unincorporated partnerships, including law and accountancy firms, fell to its lowest level last year since 2009, according to figures from finance provider Syscap.

The figures suggest that banks' reluctance to lend to law firms may not be fully justified.

According to Syscap, bank write-offs of lending to unincorporated partnerships fell to £264m in 2013, the third fall since hitting a peak of £315m in 2010.

Syscap said that despite recent high-profile collapses within the professional services sector, such as Manches, professional services firms may now be better credit risks for lenders.

Philip White, chief executive officer of Syscap, said: "While legal and accountancy firms performed relatively well during the recession compared to other sectors, there has been a perception more recently that lending to the sector is becoming high risk, and this has impacted heavily on bank lending.

"Smaller legal firms, for example, have been hit hard by a variety of challenges, such as cuts to legal aid," White said.

"Banks have picked up on these risks and have used this as a reason to avoid lending to them. However, it seems that some of these fears have been exaggerated, and the amount of bad loans made to the sector has started to shrink.

"This is partly because many firms took radical steps to protect their profitability, especially in the legal sector where we saw a lot of mergers and restructuring of the most vulnerable fee-earning areas."

White said that a lack of bank-lending to the professional services sector had resulted in many accountancy and law firms seeking alternative forms of finance.

"Small professional partnerships have regular crunch points, such as when a tax bill or professional indemnity insurance payment is due, that don't always coincide neatly with the flow of fee income."

He added that it was important to "reboot lending" to this sector so that firms could take advantage of the economic recovery.