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UK SME loan approval rate decreases year-on-year

September 7, 2012

Findings for Q2 show decrease in loan approval for SMEs compared to second quarter of 2011.

PrintWeek reports on the results of a survey regarding loan requests conducted by market research group BDRC Continental on 20,000 UK SMEs that have a turnover of under £25 million ($40 million/€31 million) and less than 250 staff.

The survey found that 34 percent of respondents, which were from a range of sectors including manufacturing and business services, were refused new loans by their banks in Q2 2012, compared to 28 percent in Q2 2011. However, this was still an improvement on Q1 2012, which saw 50 percent of SME loan applications being rejected.

It was also found that 23 percent of SME overdraft requests were refused in Q2 2012, which, while a significant improvement on the 79 percent of overdraft refusals seen in Q1 2012, is still higher than the 17 percent recorded in Q2 2011. A quarter of those refused overdrafts said that they were offered no explanation by their banks, with three quarters claiming that any advice received from the banks was “poor”.

Overall, the results indicated that the “number of businesses using external finance dropped from 51 percent to 43 percent in the 12 months to June 2012”, while the number of those with overdraft facilities also declined from 30 percent to 22 percent over the same period.

In addition, 41 percent indicated that they used personal finance in order to support their business over the past year, a quarter of whom said that “they felt it was their only option”.

As a result of the findings, which follows a number of government initiatives aimed at improving the facilities for lending to UK SMEs, the Forum of Private Business (FPB) is reportedly “encouraging business owners to appeal their banks’ decisions” using the appeal system launched last year.

Phil Orford, Chief Executive, FPB said: “As of May this year 2,177 small businesses initially denied finance have had the decision completely overturned, but this is clearly just the tip of the iceberg of business owners who believe their banks have unreasonably turned them down for finance.

“It is important to shout from the rooftops that there is an appeals process, that it works, and that small businesses who feel aggrieved should use it.”

Orford added: “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.”

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