Small firms turn away from traditional business loans

Small business bank account holders are turning away from their banks in record numbers, eschewing business loans and instead choosing to pay down debt and make use of their own reserves to fund growth, according to a recently conducted research study.

According to the survey, which was carried out by Business Monitor, nearly 80 per cent of all firms with 250 staff or less indicated that they had no need to approach lenders about seeking working capital over the past 12 months.  15,000 SMEs were included in the quarterly poll.

The marked increase in smaller businesses abandoning traditional banking, such as business loans or overdraft facilities, over last year’s final quarter increased this rise in self-reliance, according to the survey’s figures.  With the three months of last year seeing one out of every three firms turned down on their loan applications, many business owners have interpreted this to suggest that banks are not interested in tapping this demand, even in the face of missing their small business lending targets set by Project Merlin.

This rejection figure differs wildly with the market as it existed in 2007, as only 4 per cent of companies were rejected that year.  Meanwhile, 2011 figures revealed that more than 60 per cent of new start-ups looking for their initial overdraft were declined, while 44 per cent of the same class of businesses in need of a loan were likewise turned down.

Shadow business secretary Chuka Umuna commented on the survey findings, remarking that firms are finding it a struggle to secure the credit they so sorely need, with many becoming discouraged from even submitting an application in the first place, something that both the banks and ministers need to address with urgency.

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