Nearly 60% of small businesses are still having loan requests declined by banks, according to research.
The Institute of Directors (IoD), which conducted the study into lending patterns, found that, with 57% of businesses being denied loans, 20% were instead resorting to credit cards.
The research contradicts claims made by high street banks recently that they were meeting the financial needs of small businesses. It also suggests the policy of quantitive easing, which has seen the Bank of England pump £200bn into the UK economy, has not reaped the hoped-for results.
The fact that over half of all businesses seeking finance last year were turned away by their banks is totally incompatible with the banking sector’s position on the state of lending in the UK
Miles Templeman, IoD director general
Another government policy aimed at mitigating the impact of the credit crunch, the Enterprise Finance Guarantee, has also come in for criticism. The scheme, which gives government guarantees to business loans of between £1,000 and £1m, was only offered to 17% of businesses who were denied regular bank loans, according to the IoD research.
Twenty percent of companies surveyed hadn’t even considered it worth applying for bank loans, as they either thought interest rates would be too punitive or that their application would be declined altogether.
Miles Templeman, IoD director general, expressed concern at the revelation that companies are resorting to credit cards to obtain credit.
“The fact that over half of all businesses seeking finance last year were turned away by their banks is totally incompatible with the banking sector’s position on the state of lending in the UK,” he says.
“The low interest rates on credit card balance transfers may partially explain the increasing use of this form of finance, but any contraction in credit card finance could see significant price hikes, adding to the already grave difficulties that many businesses are having accessing funds.”
However, the Bank of England have recently published figures showing that lending to UK businesses in November was £100m net, the first net lending figure since January last year.
Meanwhile, the British Bankers' Association (BBA) criticised the IoD survey, saying the sample size was too small to be statistically significant.
"The IoD conclusion, which is based on fewer than 300 respondents who actually asked for bank finance, is entirely at odds with the whole of market data that shows a completely different picture," a spokesperson insisted. "New lending by the major high-street banks is currently running at well over £500m each month."
