Businesses 'losing confidence' in lenders

By Helen Gradwell

A new report suggests that there is a 'drought' in credit to small businesses - and it's getting worse.

BDRC Confidential's quarterly SME Finance Monitor has found that in the last quarter, only 43% of SMEs (small and medium-sized enterprises) used external finance, according to The Guardian. Three months earlier, however, 51% said they'd used it.

It doesn't help that a third of businesses that applied for loans in the last quarter were turned down - as were a fifth of those that applied for overdrafts. This 'loan drought' is preventing some SMEs from employing new staff and investing in new equipment that would help businesses to grow. More company owners used their own savings to invest in their business or cover shortfalls in cashflow.

This is despite George Osborne making lending to small businesses a 'key Treasury objective'. He has approved several attempts to encourage lending - but they are either struggling to gain momentum or they don't have a wide enough scope.

The British Chambers of Commerce said: "The figures strengthen the case for the creation of a British Business Bank, which would help address some of the problems in business lending."

Lee Hopley, chief economist at the EEF, said: "UK banks need to be doing all they can to encourage creditworthy firms back through their doors. They can start by delivering on their commitments, such as consistently offering the declined loans appeals process and signposting service. So far awareness of these initiatives by relevant SMEs is running woefully low."

Image © Tyler Olson - Fotolia

Tags: loans, business, credit, The Guardian, overdrafts, savings, EEF

Fees payable when continuing service is provided. Repaying debt over a longer period may increase the total amount to be repaid. Calls are recorded and are usually free from UK landlines. Mobile phone users may be charged and should check with their service provider. Cards are provided by third parties and are subject to eligibility, status and terms and conditions. Applicants must be UK residents aged 18 or over.