1 in 3 Small Business Bank Loan Applications Denied

One third of small-business owners who applied for a bank loan in the three months to May this year were denied, research by software provider Sage UK has revealed, suggesting that lending conditions are still tight for businesses.

The Sage UK survey of 1,500 small firms carried out in May 2010, found that 34 per of those who attempted to borrow money from their bank had their application turned down.

The results echo figures produced by the Bank of England its latest Credit Conditions Survey, which showed that the amount of credit made available to small businesses in the three months to June “increased by less than expected”.

However, the British Banking Association (BBA) stressed that high street banks “were open for business” and said that lending levels had remained “broadly constant” this year.

New lending to small firms across the banking sector amounted to £529 million in April, down from £678 million in March, but up on £525 million in February, according to BBA figures.

“Demand for credit had also slightly fallen over the past 12 months, which could account for slightly lower lending levels,” said BBA chief executive, Angela Knight. “Applications are down in all customer segments and sectors, reflecting the weak demand from businesses and households for credit — reasons include uncertainty about the future and fears that the recovery is patchy.”

Knight added that there was capacity within high street banks to “lend responsibly” and that the industry wanted to revive demand for credit and encourage businesses to come forward.

“To maximise their chances of getting credit, businesses need to provide sufficient information, such as a sound business plan and evidence that funds could be repaid without the firm getting into financial trouble,” she said.

A Department for Business, Innovation and Skills (BIS) spokesman said the Government had started setting out measures which addressed access to finance for small businesses.

A £200 million extension to the £500 million Enterprise Finance Guarantee scheme, announced in the Budget, will be supported by a new application processing target of 20 days to help speed things up for small firms. An independent commission on banking reform is due to report next year, the spokesman added.

However, reports on the reinstatement of the Small Business Finance Forum, which was set up under the Labour government to monitor high street bank lending, were “not confirmed”, he said.

1 in 3 Small Business Bank Loan Applications Denied

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