Half of small businesses that applied for credit last year were refused by their bank, according to the latest research by the Forum of Private Businesses.
The FPB’s Chief Executive, Phil Orford, urged the government and the banks to do more to support small businesses, including making available the promised £1bn Small Business Finance Scheme and passing on the Bank of England’s decision to cut interest rates to 1.5 per cent, the lowest in over 300 years.
“The FPB’s ongoing research, which also includes regular, real-time data provided by our economic downturn member panel, shows that UK lenders are still not providing sufficient funding for small businesses,” he said.
“The facts are now clear. government and Financial Services Authority policies have not improved the ability of banks to lend. In addition, banks have not passed on, in full, the Bank of England’s previous three cuts to the cost of borrowing because many clients have fixed rate rather than variable rate arrangements.”
Mr Orford added: “The bail-out has not delivered for small businesses or for the housing market. We are calling for additional measures to improve the availability of loans and overdrafts and for the delivery of the promised £1billion in small business funding.”
The FPB surveyed more than 6,000 members to find out how small businesses are faring in the credit crunch. Although 33 per cent said they had applied for funds in quarter four of 2008, 27 per cent of these were rejected outright while 20 per cent were partially rejected. In the FPB’s previous Referendum survey, 12 per cent of members reported difficulties in accessing finance as a barrier to developing their businesses.
The evidence shows that credit restrictions are becoming worse for many business owners. The FPB is a member of the University of Cambridge’s Centre for Business Research Banking Industry Group and the Group’s 2007 research showed that, out of the 36 per cent of small businesses applying for finance in the previous three years, 12 per cent said they were rejected outright and 17 per cent were partially rejected.
More than 40 per cent of FPB members said that the cost of banking has increased in the six month leading up to the Referendum survey, which was carried out in the first two weeks of December 2008. However, 82.6 per cent did not switch banks in the same period. Only 11.8 per cent are considering shopping around for a better deal from alternative lenders. This suggests declining competitiveness between the banks, and less choice for small business customers seeking to access finance.
Access to finance via loans has also deteriorated, according to the 12.8 per cent of FPB members who had applied for a loan. For 4.6 per cent of small businesses, loan facilities have been withdrawn. In addition, 15.1 per cent said that availability of overdrafts has deteriorated, with 2.5 per cent reporting overdraft facilities are not accessible.
The next three months are likely to be crucial as small firms seek to borrow to protect cash flow as the UK’s economy enters recession, with 24.7 per cent of FPB members saying they expect to seek new borrowing up to March 31, 2009. In addition, 7.9 per cent expect to apply for finance between April 1 and June 30, and nine per cent after 1 July.