A new report has claimed that one in four small businesses have been turned down for growth funding, with a significant number reporting serious dissatisfaction with the service offered by their bank.
The Close Brothers SME funding report shows that, of those who had applied for finance and been refused, 18 per cent said they would have used the money to start their business, while 24 per cent said they would have used the money to help their existing business to grow.
Close Brothers said: ‘This worrying trend of lenders not putting their faith in early stage SMEs looking to grow, due to a lack of capital or cash flow, may well be stifling growth, having a knock-on effect on the wider economy in the long-term.’
‘Alternatives not filling the breach’
However, for all the talk of crowdfunding stepping into the breach, only 4% of SMEs say they have used P2P lending, with around 75% saying they still felt that bank loan are the suitable way for them to get finance.
Adrian Sainsbury, chief executive of the Close Brothers commercial division, said: ‘When starting a business, a great deal of time and energy is spent on planning and developing strategies to establish and maintain a place in the market.
‘However, once up and running, it’s very easy to focus on ‘business as usual’ and this can often adversely impact on opportunities to expand and grow the business. Longer term planning is essential to maximise potential future success.’
Rob Straathof, CEO of Liberis, agreed that more needed to be done. “Small businesses are the lifeblood of the UK economy, but too often they’re held back by the complicated and cumbersome finance process of the major providers,” he said.
“This can see SMEs rejected based on how long they’ve been in business or whether they fit the bank’s own specific model, not down to their credit rating or the value of their business model. If this isn’t resolved the great gains that small businesses, start-ups and the self-employed have made over the last few years could be put at risk. The Treasury’s new Bank Referral Scheme is a welcome step in the right direction and means SMEs can go forward with confidence.”
‘Referral scheme may help’
Adrian Sainsbury reported that more SMEs are turning to lenders for advice in the wake of the referendum, which should better prepare them for when the full implications of the UK’s Brexit deal are known.
The introduction of the Banking Referral Scheme, however, may give smaller business an opportunity to access more finance options.
He said: ”Historically SMEs have not always found it easy to source the appropriate funding required to sustain or grow their businesses, but times have changed.
‘The recently announced Government initiative means that in the near future high street banks will be required to offer a referral to any SMEs they turn down for finance, and that’s a positive and purposeful step both for businesses and the economy.’
Main reasons SMEs are refused finance:
- Cash flow not considered strong enough – 27%
- Banks not lending to SMEs at the time – 23%
- The SME doesn’t have enough capital – 20%
- Business plan isn’t robust enough – 19%