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Posted on Monday, 05 March 2012 12:43PM by
BDRC Continental's report for the banking industry has highlighted the ongoing problems some SMEs face in obtaining credit. 

Labour yesterday blamed the government's economic policies for stymying
small business growth as an independent survey showed that a "significant minority" of small businesses seeking loans are failing to gain the credit they seek.

Businesses less than a decade old and with poorer risk ratings were more likely to be turned down while an existing relationship with a bank made it easier to obtain credit, according to the report by BDRC Continental and commissioned by the banking industry. It found that of the 8% of small- and medium-sized enterprises (SMEs) seeking credit, only 66% were successful in being granted a loan and 85% in being granted an overdraft.

The new SME Finance Monitor – the result of a business finance taskforce set up a year ago to tackle concerns that banks were restricting credit – also found that concerns about the economy were holding back applications for loans.

Chuka Umunna, shadow minister for small business and enterprise, said: "The government's policies – putting up VAT and cutting too far and too fast – are choking off growth and holding back businesses." The SME Finance Monitor confirms that the lack of confidence in the economy is the key factor putting businesses off seeking additional finance.

While comparisons are difficult, as this is the first study, the research concluded that: "The proportion successfully applying for/renewing a loan has declined from pre-crisis levels."

Amid the political row over SME funding – regarded as a crucial engine for economic growth – the SME finance monitor described 15% of all SMEs as "unrequited" – that is wanting to apply for funding but failing to do so. The number is also expected to rise, as almost one in five think they will be "unrequited" in the next three months, with the blame being laid on the economic climate.

The report cited four reasons from SMEs for not applying for credit:

• The current economic climate was cited by 22% of unrequited overdraft applicants and 31% of unrequited loan applicants.

• One in three would-be overdraft applicants (34%) and more than half of all would-be loan applicants (54%) felt discouraged from applying. This is the equivalent of 6% of all SMEs reporting that they felt discouraged.

• The cost and time involved was also mentioned (57% of unrequited overdraft applicants, 58% of unrequited loan applicants mentioned such issues).

• Some 60% of unrequited overdraft applicants and 55% of unrequited loan applicants mentioned their fear of losing control of their businesses.

Mark Long, research director at BDRC, said: "There is a significant minority of applicants who aren't getting what they expect from their banks."

But only 8% of SMEs had applied for a new loan or overdraft and the research found that overdrafts were more likely to be offered than loans. Some 28% of loans were initially declined compared with 17% of overdrafts.

The British Bankers' Association (BBA) said: "The results from the SME finance monitor are encouraging and show that most business are able to get the credit they need and that customers with a good track record and sound credit history find the process straightforward. It clearly pays to have a strong, ongoing relationship with your bank as existing customers were rarely turned down."

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

Shiona Davies, a director at BDRC Continental who led the research, said: "Bigger SMEs are more likely to be offered what they want. For overdrafts, 83% of applicants with 10-249 employees got what they wanted straight away against 71% of those with nine or fewer employees. Loans showed a similar pattern: 69% of applicants with 10-249 employees were initially successful compared to 58% of those with nine or less employees. It is easier to renew existing facilities than to obtain new funds."

The employers body the CBI said it was concerned the figures showed SMEs lacked confidence when considering borrowing from banks. Katja Hall, CBI chief policy director, said: "It's concerning that far fewer SMEs are confident about receiving the funding they apply for over the next quarter than those who actually got what they asked for last year.

"This shows that banks need to work hard to build stronger relationships with their smaller business customers."