Posted on 17 June 2016
One of the major issues still facing businesses today is accessing finance for growth, or simply the support to help them through difficult times, despite commitment from the government to ensure that banks, investors and lenders are more open and flexible in their approach.
Over the past year, Bank of England figures showed the largest drop in small business lending since records began. The delay in the promised bank referral scheme, announced by the Government, which forces UK banks to suggest alternate financing options to those refused credit has the potentially caused a contraction in the small-to-medium-sized enterprise (SME) sector.
Under the new referral rules, banks that reject SMEs for finance are required to ask these firms whether they want their details to be shared with websites, who will then refer companies to challenger banks and alternative lenders.
Currently, seven out of 10 SMEs that are refused a loan do not go on to raise alternative finance, according to the Department for Business, Innovation, and Skills (BIS), with a 50pc rejection rate for first-time SME borrowers, and fewer than 2pc of those businesses declined for loans by their banks appealing the decision. The success rate for appeals stands at just 1.3pc.
The Construction Industry has probably felt this more keenly than others with bank lending in the sector decreasing by 38% during the period of 2009 – 2012, due to the industry being seen as high risk. This is compared to a drop of 5% in other industries for the same period. The result is that this industry in particular has sought expensive alternatives such as trade credit, without the financial tools to manage it, rather than seek a second opinion or appeal the loan refusal.
As a result of such trends companies are abandoning plans for growth or worse losing their companies due to the inability to secure bank lending.
Evidence suggests that businesses are still unwilling to seek other sources of finance once an initial application to the bank has failed. This is coupled with the banks delaying the process of referring the business to other lenders. A possible outcome of this is that business owners feel the need to inject their own personal funds into the business to keep it afloat, which then exposes them and the business to unnecessary risk.
If you are unsure of the options open to you regarding financing your business, Smith Cooper are able to draw on their vast experience and network of funding providers to help you find a solution. If you wish to speak to one of our team please contact Michelle Mackenzie-Cooper on Michelle.Mackenzie-Cooper@smithcooper.co.uk