Almost Half of Small Business Loan Applications Rejected by Banks

Posted on 10 September, 2013 by Kirsten Kennedy

SME lending has become a hugely contentious issue in the UK this year. On one hand, the government does not believe that sustainable growth can be achieved without small firms accessing the funds they need to expand, but on the other the banks remain wary about lending in the wake of the financial crisis.

According to a survey conducted by the Federation of Small Businesses (FSB), 47 per cent of its members who have attempted to access a loan in the past 3 months had their applications rejected. This is despite the fact that the Bank of England’s Funding for Lending Scheme is now in full swing, giving lenders access to cheap funds in order to pass savings on to SMEs.

So far, £17.6 billion has been channelled into the initiative in the hope that this money will be used to assist businesses seeking to grow or build up their capital reserves. Unfortunately, going by the FSB’s report, this initiative is failing to give smaller businesses a helping hand.

Yet the disappointing figures appear to be simply the tip of the iceberg when examining the strained relationship between SMEs and the banking sector. 56 per cent of more than 2,000 firms participating in the survey did not believe that banks truly have the interests of small businesses at heart, instead prioritising “safer” lending to large firms and multi-nationals.

In fact, only 16 per cent of respondents voiced the claim that their banking chain of choice supported their small business when it came to financial matters.

FSB national chairman John Allan believes that repairing the rift between SMEs and high street banks is essential in stabilising the UK economy.

He says; “Restoring this trust and getting banks to work in partnership with small firms is absolutely crucial for the recovery.

“However, our latest figures are a salutary reminder that the process still has some way to go, with more than half of our members believing the banks don’t care about small firms.”

For many small businesses, a lack of faith in high street banks has caused them to seek alternative lenders in a bid to build their business. Building societies, which have now been included in the Funding for Lending scheme, are proving popular with growing businesses.

Those thinking outside the box are even looking further afield, with 40 per cent of survey respondents expressing an interest in approaching a peer to peer lender. Furthermore, 50 per cent of participants have considered, or are already negotiating with, credit unions.

With the UK’s economic future highly dependent on the success and growth of small businesses building a stable foundation, it has become clear that something must be done in order to facilitate their expansion. The question is whether high street banks are now the most suitable judges of which firms deserve a financial boost, or whether the government must directly intervene in the lending situation.

Do you believe that the Funding for Lending Scheme would be more successful if an independent body (reporting back to the government) assessed the suitability of SMEs for business loans?

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