The latest quarterly ‘SME finance monitor’ from the British Bankers’ Association (BBA) shows that, since January 2010, banks have turned down 49% of new small business loan and overdraft applicants and overall just a third of new applicants have received the finance they needed.
The Forum of Private Business is urging frustrated business owners to appeal against decisions they feel are unfair.
The figures come despite several high-profile government initiatives to get the banks to lend more readily and reduce the cost of finance – including the National Loan Guarantee ‘credit easing’ scheme and Project Merlin that set lending targets most banks failed to meet and was one of the reasons a right of appeal was established.
Despite poor overall small business lending figures the appeals process has overturned 39.5% of rejected funding applications in its first year of operation, according to a recent report from Professor Russel Griggs on behalf of the BBA. The Forum is urging more disgruntled business owners to use it.
The potential consequences of continuing credit restrictions for business owners are concerning. In total, 41% of SMEs surveyed said that personal funds had been injected into their businesses in the past 12 months – this being more common among firms with fewer than10 employees, younger businesses and those with poorer external risk ratings.
Of these, 16% said it was something they had chosen to do to help their businesses grow, while 25% said that they felt they had no choice but to use their own money to fund their businesses.
The Forum’s Chief Executive, Phil Orford. said: “The bigger picture is that these data back up criticisms that banks are still not gauging small business lending risk accurately in the first place.
“There is a pressing need for improvements to local services and local decision making less reliant on automated risk systems and data from credit rating agencies, which often vary wildly from company to company where a standardised approach is needed.
“Banks often say there is a lack of demand but it is evident that, while businesses understand the importance of banks, owners are becoming alienated by mainstream lenders and are looking elsewhere – including their own personal finances. It is also important to support alternative funding providers to help them compete in small business finance markets dominated by the big banks.”
The Forum, which surveys its members views on finance, bank lending and alternative funding provision via its Cash Flow and Finance member panels, is calling for finance to be made more readily accessible for SMEs as part of its headline Get Britain Trading campaign. To join the campaign, visit the web address below.