Banks are more wary of lending money to small businesses following the recent surge in the cost of borrowing and the escalating credit crisis, it has been claimed.
According to the Federation of Small Businesses (FSB), small firms are often considered to be ‘more of a risk’ by banks, and appear to be struggling to secure loans at present.
“The issue is that the banks are being more choosy over who they lend money to until they ride out the storm,” the FSB told the BBC yesterday.
“There's a bit of a 'Computer Says No' mentality. Banks often see small businesses as more of a risk - and because they aren't able to tick all the boxes which the banks set out, they struggle to borrow.”
According to the FSB, the credit crisis is a result of the Bank of England’s decision to raise the interest rate to a six-year high of 5.75% in July.
Matthew Knowles, a spokesman for the Federation of Small Businesses (FSB) told Growing Business: “The knock-on effect of the Bank of England putting the interest rate up is that small firms taking out loans are facing double digit interest rates.”
“Small firms act as the canary in the coalmine. If they are finding it more difficult to secure loans, it’s a good indication that the credit crunch is worsening.”
However, Knowles stressed that we are at ‘a crossroads in the credit crisis’, whereby a fall in the interest rate could have a significant restorative effect.
“Time will tell over the next few months,” he added.
© Crimson Business Ltd. 2007
