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Banks continue to reject business finance requests

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15th Feb 2010
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Nearly 60% of businesses seeking bank finance in 2009/10 were rejected by their bank, and 20% are financing their businesses to some extent with credit cards according to IoD data.

This evidence, which will be submitted to the government, challenges a central claim made by some UK banks last week in the wake of the critical Public Accounts Committee report, that where demand exists for bank finance the majority of that demand is being met.

In the survey of 1,045 directors, a quarter said that they had tried to access finance from the institutions that they banked with in 2009/10. Of this quarter, 57% of directors said that their application for finance had been rejected by their bank. This evidence contradicts claims being made by the banks that the majority of lending demand is being met. 

“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”, said Miles Templeman, director general of IoD. “But what is even more concerning is that that having been rejected, 83% of businesses are not receiving information about the alternatives available to them, including the government’s Enterprise Finance Guarantee.”

The study also found that one in five businesses that wanted additional capital in 2009/10, didn’t investigate bank loans or overdrafts because they believed they would be declined, saddled with disproportionately high costs or required to comply with requests for additional security. 

The overall picture of finance being accessed by businesses has also changed over the past few years. IoD data from 2001 showed that 45% of IoD members were financing their businesses through bank loans and 40% through overdrafts. Today, only 28% are doing so via bank loans, 36% through overdrafts with a further 20% financing their business to some degree through credit cards.

“It seems that more businesses are turning to forms of unsecured finance, such as credit cards to get them through their short term spending needs. 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,” warned Templeman.

 

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