Small businesses urged to use appeals process

Figures showing almost half of all new small business lending applications have been declined by banks are being greeted with disappointment by the Forum of Private Business, which is urging frustrated business owners to appeal against decisions they feel are unfair.

The latest quarterly ‘SME finance monitor’ from the British Bankers’ Association (BBA) shows that, since January 2010, banks have turned away 49 percent of new small business loan and overdraft applicants – and overall just a third of new applicants have received the finance they needed.

The figures come despite several high-profile government initiatives to get the banks to lend and reduce the cost of finance – including the National Loan Guarantee ‘credit easing’ scheme and Project Merlin, which set lending targets most banks failed to meet and was one of the reasons a right of appeal was established.

Despite poor overall small business lending figures the appeals process has overturned 39.5 percent of rejected funding applications in its first year of operation, according to a recent report from Professor Russel Griggs on behalf of the BBA. The Forum is urging more disgruntled business owners to use it.

The potential consequences of continuing credit restrictions for business owners are concerning. In total, 41 percent of SMEs surveyed said that personal funds had been injected into their businesses in the past 12 months – this being more common among firms with fewer than 10 employees, younger businesses and those with poorer external risk ratings.

Of these, 16 percent said it was something they had chosen to do to help their business grow, while 25 percent that they felt they had no choice but to use their own money to fund their businesses.

Mr Orford says the bigger picture is that this data backs up criticisms that banks are still not gauging small business lending risk accurately in the first place: “Banks often say there is a lack of demand but it is evident that, while they understand the importance of banks, business owners are becoming alienated by mainstream lenders and are looking elsewhere – including their own personal finances. It is also important to support alternative funding providers to help them compete in small business finance markets dominated by the big banks.”