One in three firms are still being declined by their bank when they apply for finance, according to an Institute of Directors (IoD) survey.
The survey of 899 company directors revealed that 39% of firms applied for extensions, renewals and new requests for overdrafts and loans between January and June 2010, but 33% had applications rejected by banks. However, this does represent a marked improvement on 2009, when 57% of companies applying for finance were refused.
39% of firms applied for extensions, renewals and new requests for overdrafts and loans between January and June 2010, but 33% had applications rejected by banks
Also in the most recent six-month period, 37% of IoD members noticed an increase in lending criteria restrictions.
Miles Templeman, general director of the IoD, said: “Although there is clear evidence of a drop in decline rates we’re still concerned that access to finance for businesses remains difficult. The survey indicates that some access problems relate to lending criteria becoming more restrictive with regard to the amount of security requested by banks.”
Templeman believes the figures raise question marks over government efforts to boost lending to businesses. “This raises a question about the functioning of the Government’s Enterprise Finance Guarantee scheme (EFG). The IoD would like the Government to clarify the relationship between the state-backed guarantee scheme and bank requirements for personal security.
“We continue to hear from IoD members who’ve had 75% of a loan underwritten through the EFG but who are still required by their bank to put up personal securities equivalent to over half of the loan value. Of course businesses should have some ‘skin in the game’, but this seems excessive.”
However, the British Bankers’ Association has hit out at the IoD for using “dodgy statistics” and failing to engage with the association.
Speaking at the organisation’s international banking conference, chief executive Angela Knight attacked the IoD, saying: “The BBA issued a fact sheet on how banks set the price for loans to small business. It is particularly designed to show what makes up the cost of the loan and the accompanying press release includes explicit support from a number organisations representing industry – the borrowers if you like – including representatives of small business.
“What a pity the Institute of Directors decided instead on a spoiler with dodgy statistics and chose again not to engage with the BBA.”
Knight called for an end to the “blame game”, insisting: “The banks understand their societal responsibilities and are committed to constructive and productive relationships as the right way forward.”
An IoD spokesman responded: “We are merely representing the views of our members and the feedback that they give us.”
