Claims made by high-street banks that demand for credit from small to medium-sized businesses (SMEs) is weak have been supported by a survey showing that fewer than one in five enterprises have applied for bank loans in the last year.
Of the 1,000 companies polled by the Institute of Chartered Accountants in England and Wales (ICAEW) just 16% said they had applied to borrow money in the last 12 months.
More than one in two of SMEs which did apply for loans said they had noticed a rise in borrowing costs and arrangement fees, the ICAEW reported. Even existing borrowing arrangements aren’t immune to the growing cost of borrowing, given almost 30% said they’d been pressured by their bank to change the cost or size of their facilities.
Business secretary Vince Cable has been sceptical of bank claims that a lack of lending to SMEs was because of low demand rather than scarce supply. The Lib Dem, who was scathing of the behaviour of banks during the election campaign, recently ratcheted up pressure on banks to lend to small businesses by reviving a lending forum set up by his predecessor, Lord Mandelson.
Companies were have seeking out alternative sources of finance, said the ICAEW, such as through existing debt finance, reducing working capital and by cutting costs.
Good financial discipline means there is not much demand by firms to take on more debt
Chris Lewis, ICAEW head of enterprise
Nearly two thirds of companies did not feel growth over the next two years was reliant on their ability to increase debt financing, however, which the ICAEW called “positive news for the UK economy”.
Clive Lewis, head of enterprise at ICAEW, said: "Good financial discipline means there is not much demand by firms to take on more debt. Those that have applied have generally being accepted but are having to pay higher costs. This will be the norm as the cost of debt pre-recession was very cheap and I doubt we will see those levels again for a long time."
Miles Templeman, director general of the institute, adds: "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."
