Almost 60% of businesses seeking bank finance over the last year came away empty handed, it has been claimed.
In a survey by the Institute of Directors (IoD), which quizzed 1,045 directors, around a quarter had attempted to secure finance from the institutions they banked with in 2009 and 2010. Of this number, 57% had their application turned down.
The IoD will be submitting these findings to the government as evidence to refute claims made by some UK banks, who last week insisted that where demand exists for bank finance the majority of that demand is being met.
Miles Templeman, director general of the IoD, commented: “The fact that over half of all businesses seeking finance last year were turned away by their banks is totally incompatible with the banking sector’s position on the state of lending in the UK.”
The research also found that the majority of firms which had been refused bank finance were not being made aware of initiatives designed to help credit-starved companies through the recession, despite the government’s assurances to the contrary.
For example, more than 80% of those refused bank finance were not told about the Enterprise Finance Guarantee (EFG) scheme, an initiative designed to help businesses with a sound proposition, which may have been declined commercial finance due to a lack of security, whereby the government guarantees up to 75% of a loan.
“What is even more concerning is that having been rejected, 83% of businesses are not receiving information about the alternatives available to them, including the EFG,” said Templeman.
Around 20% of firms that needed additional capital last year didn’t apply for bank finance because of the perception that they would be turned down, or over concerns about high costs or requests for personal guarantees.
Just 28% of businesses are funding their businesses with bank loans and 36% through overdrafts, compared to 45% and 40% respectively in 2001.
The research also corroborated a spate of surveys recently that have suggested that business owners are increasingly financing their companies with credit cards.
Templeman added: “It seems that more businesses are turning to forms of unsecured finance, such as credit cards, to get them through their short term spending needs.
“The low interest rates on credit card balance transfers may partially explain the increasing use of this form of finance, but any contraction in credit card finance could see significant price hikes, adding to the already grave difficulties that many businesses are having accessing funds.”
© Crimson Business Ltd. 2010
