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One in five SMEs still refused funding application from high street lenders

By CreditMan Tuesday, September 3, 2013

Bad personal credit history, a lack of experience in business and operating in a high-risk sector are among some of the reasons given to business owners who have been refused funding from banks over the past six months.

The survey of 1,000 small to medium-sized business owners, conducted by Bibby Financial Services, highlights concerns that funds are still not trickling down to SMEs – and suggests that business owners are struggling to find the necessary funds to grow their enterprises.

This is despite cheaper finance being made available to banks from the Government to pass on to businesses, through initiatives such as the Funding for Lending Scheme (FLS).

Updated figures showing the performance of the FLS for the second quarter suggests that while lending has increased in the mortgage market, lending to businesses actually fell during Q2.

What is sure to be of concern to the Government’s ambitions to widen access to funding for SMEs is the finding that two thirds (62%) of those surveyed said they had not applied for bank funding in the past six months. And of those which had, almost one in five (17%) had their application refused.

Furthermore, according to Bibby Financial Services, some businesses are finding banks are less willing to discuss funding requirements until finance is critical, preventing these businesses from planning ahead.

Stirling Hinkley is an ergonomics expert based in Oxfordshire who had a frustrating experience trying to convince two high street banks to consider his business for funding.

Stirling says: “I needed funding quickly but the banks all made it so difficult that I started to look elsewhere.”

Stirling was able to secure an invoice finance facility which is more attuned to his business needs, but his experience with the banks isn’t unique.

It’s perhaps for this reason that almost half of firms (47%) have applied for an alternative, non-bank, form of funding in the past six months, suggesting that more business owners are considering different types of finance to support their enterprises.

Main findings from the research include:

* 62 per cent of businesses say they have not applied for funding over the past six months
* Of those who have applied for bank funding in the past six months, 17 per cent have been refused. More than a third, 37 per cent, of these say they have been refused a loan because of personal credit history, 26 per cent say the reason given was that they have not been in business long enough, and 21 per cent were told the business operates in an industry which poses a high risk
* Almost a third, 31 per cent, have successfully applied for an alternative form of finance in the past six months

David Postings, UK CEO at Bibby Financial Services, says: “The research suggests that the banks are still far too risk averse when it comes to lending to small businesses, which is why many SMEs have turned to alternative funding sources.

“On the face of it, the first two quarters of the year have delivered some positivity, but there is still a long way to go and it is evident many businesses still struggle with issues such as the costs of running a business and maintaining working capital.”

Postings continues: “The Funding for Lending Scheme seems to have boosted the mortgage market through reduced interest rates from lenders; however, it has not stimulated business lending, which is a blow to hopes for long-term economic recovery.

“For further and sustainable economic growth, lending to small businesses needs to increase and the invoice finance market is geared up to offer this funding support.”


Data taken from results of survey of 1,000 SMEs conducted between 19 July and 5 August 2013.

To find out more about Bibby Financial Services visit:
www.bibbyfinancialservices.com