BookCheck is in the middle between lenders and their customers - we hear both sides. Our clear and extensive experience is that there is a disconnect between the two. Whilst lending continues, the question is how many deals have been lost because of this. And how much are growth prospects being wasted?
Just 40% of companies with fewer than 250 employees reported using any form of external finance, the lowest level since the start of 2010, a key survey shows.
The bank-funded Business Monitor also revealed that just one in three firms that are planning to apply for a loan or overdraft are confident their bank will agree to the request, down from more than half at the start of 2012, and a record low for the quarterly survey.
EEF, the manufacturers’ group, called for an “immediate review” of small business finance in light of the results, including a focus on increasing competition and making it easier for companies to switch bank.
Lee Hopley, the EEF’s chief economist, said: “Despite investment and investment intentions holding up this year, disengagement with external finance providers is on the rise. We need every pound of investment we can right now to support our SMEs growing into the globally-focused, mid-sized and ultimately large businesses of tomorrow.”
Shiona Davies, director at BDRC Continental, which conduced the research, said the results were down to a combination of a weak economic climate reducing the appetite for credit and an assumption that banks aren’t ‘open for business’.
“There’s a clear message that SMEs are moving away from external finance; fewer are saying they’re renewing facilities or that they’ll apply in the future.”
She added that lack of confidence that banks will approve an application “contrasts with the actual success rates”, which stand at around 70pc.
However, the smallest businesses are finding it harder to secure finance, Ms Davies said. Among first time applicants for bank finance, just 42% were successful.
Alex Jackman, of lobby group the Forum of Private Business, said: “There’s an undeniable and altogether unsurprising drift away from banks as lenders. It’s not a dramatic collapse in trust, more of a slow, inexorable creep away. The banks really must address this issue for the good of the UK economy if they are to avert a real shift in cultural attitudes to finance sourcing.” He added that “Government must read the riot act to the banks to improve their support for businesses that are in the higher risk category, if not with money but by way of more tailored business advice and support”.
The survey – which is used by the Business Department to monitor the treatment of small businesses by banks – also found that only a minority of those declined for a loan or overdraft were offered alternative forms or sources of funding.
Advice provided by banks was typically rated “poor”, and awareness and use of an independent appeals process remains “very limited”.
“Their perception is that they haven’t been signposted elsewhere. They seem disappointed by the whole process,” said Ms Davies. She added that there was also widespread ignorance of Government schemes to boost lending and reduce the cost of loans, such as Funding for Lending.
“If there was a perception that cheaper finance is available, more companies might apply.”
The research described the biggest group of small companies as “happy non-seekers” of finance, since 63% of firms are content not to apply for outside funding.
Ms Hopley added that the Government’s planned ‘business bank’ should be a “commercially focused retail challenger to compete with the incumbents”.