SME Finance Monitor reveals the parlous state of business banking in the UK, warns Forum

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Appeals awareness is low and more first time applications are being refused, but businesses should not be put off from applying for finance at present, says lobby group…..

The Forum of Private Business has said data released in today’s BDRC Finance Monitor for SME lending highlights ongoing problems with business banking in the UK.

The research has shown particular issues for first time applicants (FTAs) who are finding it increasingly difficult to successfully source credit from lenders. The BDRC research showed more than half (54%) of FTAs for a loan or overdraft ended the process unsuccessfully. This compared to 21% for non first time applicants seeking new or renewed facilities, and 8% for those renewing an existing facility over the last three years.

The figures, said the Forum, showed a significant drop in approval rates for FTA lending, which in 2011 had a failure rate of 53%, and in 2010 just 42%. At the same time, the Monitor data showed a sizeable increase in personal cash used to finance a business venture, with 34% stating this was not through choice – a 9% increase compared to two years ago.

Forum spokesman Robert Downes said: “The long and short of it is that in 2012 firms seeking credit for the first time – usually the ones who need it most – are the ones more often than not being refused access to credit from lenders. And it’s got markedly worse in a short period.

“Simply put, the banks risk-averse nature is stifling the next generation of business owners – and the government is idly watching from the sidelines.

He added: “Unfortunately, these results come as no surprise following the dreadful Funding for Lending figures earlier this week, and shows the desperate state of small business lending at the minute. It also shows government must look at radical action to get banks lending or we’ll never get out of the hole we’re in.”

The Forum was also critical of the overwhelming lack of awareness amongst business of the loan appeals system identified in the Monitor’s findings. Only 14% of failed overdraft applicants and just 8% of unsuccessful loan applicants were aware of the appeals system, which was introduced in April 2011. Two thirds of those rated the banks’ feedback for why they were refused as poor.

“It is not good enough that two years after the appeals system was brought in, only 10% of businesses turned down for bank finance say they are aware of it,” added Downes.

“Such lack of awareness is a huge fail by anyone’s standards; that the banks are implicated again when it comes to a form of self-regulation speaks volumes about the self-serving culture in the sector.

“Just how many firms have been let down as a result? We’ll never know the answer, but this has to now be a priority for lenders, and if they aren’t capable, government must step in.”

He added: “There’s a good case for an opt-out system here, so businesses would automatically enter an appeal unless they chose not to. Whatever the answer, the status quo is clearly not sufficient.”

The Forum said the Monitor, however, suggested not all the blame could be put at the foot of the banks for the dearth of business lending. The Forum points out that more than a third of SMEs who wanted an overdraft felt discouraged because they thought the answer would be no. The reality is banks are approving 7 in 10 applications.

“Clearly there’s a fear out there that the banks will automatically say no, and while this might be the case for FTA, this is not the case for more established businesses,” said Downes.

“We also need to see a bit of encouragement for SMEs to get out there and apply for finance, particularly with it being cheaper than it has been for quite a while due to the Funding for Lending Scheme.

“All that said, the banks have no one else but themselves to blame for these negative attitudes. They’ve hardly been the friend of small businesses for quite some time now.”