Small firms 'still missing out' on bank lending

A LOBBY group yesterday cast doubt on claims that the majority of small firms applying for loans or overdrafts in the past 12 months got the finance they wanted.

Almost three in four (72 per cent) of small and medium sized enterprises (SMEs) who applied for an overdraft got a positive response, according to a study commissioned by the chief executives at the six biggest banks.

The figures, based on more than 5,000 telephone interviews, address concerns over the level of bank lending to small businesses after official figures suggested that banks were falling short of agreements drawn up with the UK government under Project Merlin.

The research was conducted by market research firm BDRC Continental, which was selected by the cross-bank business finance taskforce, to report on a quarterly basis.

But the Federation of Small Businesses in Scotland said the survey revealed that the smallest businesses are still more likely to get a rough deal from the banks.

The FSB Scotland said more than half (55 per cent) of businesses with up to nine employees had not applied for a loan in the year because they expected to be turned down.

Andy Willox, Scottish policy convener said: "The picture that emerges from this independent research shows that the smallest businesses are losing out - with a third being refused outright when initially applying for new finance. Our members in Scotland have been telling the FSB for years that they are fearful of approaching the banks for new finance, or to extend an overdraft.

"This research for the BBA Taskforce should feed in to the recommendations the Independent Commission on Banking will be making to the government in September."

The CBI said it was concerned that the figures showed SMEs lacked confidence when considering borrowing from banks. Katja Hall, chief policy director for the employers' lobby group, said the survey showed that banks need to work hard to build stronger relationships with smaller business customers.

Barclays, Royal Bank of Scotland, Lloyds Banking Group, HSBC and Santander UK lent 16.8 billion to SMEs in the first three months of the year, figures from the Bank of England showed.

Under the Project Merlin agreement, the banks said they would increase lending available to SMEs to 76bn this year, which equates to 19bn in the first quarter.The figures showed the banks were on course to meet overall business lending targets of 190bn this year, equal to 47.5bn for the quarter.

The British Bankers' Association (BBA) said the SME Finance Monitor was encouraging and showed businesses were able to get the credit they need.

The BBA said: "The picture is also complex with many customers clearly still concerned about the economic climate and so are less inclined to borrow."

But the survey also showed that only one in six - or 15 per cent - of businesses surveyed has applied for a new facility or renewed an existing one in the past 12 months.

SMEs which did not approach a bank cited four main reasons - current economic climate, discouragement after making an informal inquiry at the bank, cost and time involved with borrowing and the principle of borrowing.