The research has shown particular issues for first time applicants (FTAs) who are finding it increasingly difficult to successfully source credit from lenders.
The BDRC research shows more than half (54 per cent) of FTAs for a loan or overdraft ended the process unsuccessfully, compared to 21 per cent for non first-time applicants seeking new or renewed facilities, and 8 per cent for those renewing an existing facility over the last three years.
The Forum of Private Business says the figures show a ‘significant’ drop in approval rates for FTA lending, which in 2011 had a failure rate of 53 per cent, and in 2010 just 42 per cent.
At the same time, the Monitor data shows a sizeable increase in personal cash used to finance a business venture, with 34 per cent stating this was not through choice – a 9 per cent increase compared to two years ago.
Forum spokesman Robert Downes says, ‘The long and short of it is that in 2012 firms seeking credit for the first time – usually the ones who need it most – are the ones more often than not being refused access to credit from lenders. And it’s got markedly worse in a short period.
‘Simply put, the banks risk-averse nature is stifling the next generation of business owners – and the government is idly watching from the sidelines.’
Downes adds that these results come as no surprise following the ‘dreadful’ Funding for Lending figures earlier this week and shows the ‘desperate state’ of small business lending at the minute.
‘It also shows government must look at radical action to get banks lending or we’ll never get out of the hole we’re in.’
The Forum is also critical of the level of awareness among businesses of the loan appeals system identified in the Monitor’s findings.
Only 14 per cent of failed overdraft applicants and just 8 per cent of unsuccessful loan applicants are aware of the appeals system, which was introduced in April 2011. Two thirds of those rate the banks’ feedback for why they were refused as ‘poor’.
More than a third of SME owners who want an overdraft feel discouraged because they think the answer would be no, with the reality that banks are approving seven in ten applications.
‘Clearly there’s a fear out there that the banks will automatically say no, and while this might be the case for FTA, this is not the case for more established businesses,’ adds Downes. ’We also need to see a bit of encouragement for SMEs to get out there and apply for finance, particularly with it being cheaper than it has been for quite a while due to the Funding for Lending Scheme.
‘All that said, the banks have no one else but themselves to blame for these negative attitudes. They’ve hardly been the friend of small businesses for quite some time now.’