Small merchants shy away from banks

Published:  28 April, 2010

LONDON: Small businesses are still avoiding the banks, said the Federation of Small Businesses. Only 18% of small firms have approached banks for new credit, according to a survey by the federation. Of those, only half were successful in their applications.

As the state-owned banks have been given new lending targets by the Government the survey also revealed that just over one-third of businesses (36%) had their application refused with 12% yet to find out the bank's decision.

For businesses with existing finance, the survey also showed that 16% had seen an increase in the cost over the last two months. Of these, 44% saw between a 2% and a 3% rise, but more worryingly, 12% saw interest rates hiked anywhere between 10% and 14%, at a time when the base interest rate is at an all-time low. Only 1% of respondents had seen the cost decrease.

John Walker, national chair of the Federation of Small Businesses said: "Trust needs to be restored between banks, bank managers and business as credit conditions remain tight for small firms. We hope the next Government – of whatever hue – will look at the best way to address the issues in the banking system to ensure that the UK has the necessary financing structures to support further economic recovery.

"Small businesses continue to bear the brunt of the financial crisis and are being penalised with extortionately high interest rates. At any time, not least when the economy is on such a fragile path out of recession, a 10% to 14% increase in costs is highly unreasonable."

The FSB has long been critical of the banks and their lending criteria and believes that the introduction of the Small Business Credit Adjudicator announced in the Budget will help to ensure small firms are given a fair deal and a right of appeal against decisions made by big banks.

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