One out of every three small business bank account owners have been struggling to secure financing from their bank due to high business loan fees, high collateral rates, and high interest rates, according to a report recently released by the Institute of Directors. The IoD is a not-for-profit business organisation that acts as a representative, and also sets standards, for directors.
The small or medium sized businesses, or SMEs, that applied for financing with a bank within the first half of this year has increased, the survey found, compared with the full year preceding this one.
This has led to an not only increased borrowing from banks but also increased liquidity, according to the IoD’s survey. While 33 per cent of IoD members applying for business loans have been refused so far this year, this rate is down significantly from 2009: throughout the entirety of last year, the business loan refusal rate had stood at 57 per cent.
The increased number of approved business loans comes at a price to borrowers, however, in the form of an increase of requested security for their loans. An approximate increase of 37 per cent has been observed by the survey, which is up from 29 per cent in 2009 when the previous survey was conducted.
The director-general of the IoD, Miles Templeman, commented on the survey results. He stated that the IoD continues to hear from members who have had their loans underwritten by up to 75 per cent through the enterprise finance guarantee scheme implemented by the government, yet are still being required by their lending institutions to put up collateral in equal to over half the value of the loan.
The statistics director ofthe British Bankers’ Association, David Dooks, commented that new term lending to SMEs is not only stable but is continuing to grow at more than GBP500m every month. He went on to state that higher repayments from SMEs that are looking to limit their operating costs are counteracting new loans, leading to net changes in the negative in the lending portfolio of the banks as a consequence.
Dooks also said that small business banking account owners’ borrowing will most likely remain subued until there is an improvement in the conditions surrounding economic trade. While 47,000 SMEs are either switching their relationships with existing banks or starting to take on banking services, Dooks said the number of new and open business bank accounts is holding up nicely.