Access to Finance for Businesses Remains Difficult, Finds IoD Survey

The Institute of Directors (IoD) has released new data which shows that businesses are still having difficulty accessing finance from their banks despite a fall in decline rates. The survey polled 899 company directors at the beginning of June 2010.

Key findings of the survey are:

  • One in three firms that applied for finance in the time period 1 January 2010 to June 2010 were declined by their bank.
  • There is evidence that lending criteria have become more restrictive with regard to the amount of security requested by banks.

Applications and Decline Rates for Finance

  • Thrity-nine percent of IoD members’ firms applied for finance with a bank (applications include requests for renewals/extensions/new requests for overdrafts and loans) in the time period 1 January 2010 to June 2010. This compares with an application rate of 25% in the previous survey, which covered the longer time period, 1 January 2009 to December 2009 (the survey was carried out in December).
  • Of the 39% of IoD members’ firms that applied for finance in the time period 1 January 2010 to June 2010, 33% had an application for finance declined by a bank. This compares with a decline rate of 57% in the previous survey.

Security Requested Against Loans

  • Thirty-seven percent of IoD members stated that in the period 1 January 2010 to June 2010 they had noticed an increase in the amount of security being requested against any lending that their organisation sought. This follows 29% of IoD members in the previous survey having noticed an increase. No respondents in the latest survey noticed a decrease in the amount of security being requested.

Miles Templeman, director-general of the IoD, said: “Although there is clear evidence of a drop in decline rates we’re still concerned that access to finance for businesses remains difficult. The survey indicates that some access problems relate to lending criteria becoming more restrictive with regard to the amount of security requested by banks. This raises a question about the functioning of the Government’s Enterprise Finance Guarantee scheme (EFG).

“The IoD would like the Government to clarify the relationship between the state-backed guarantee scheme and bank requirements for personal security. We continue to hear from IoD members who’ve had 75% of a loan underwritten through the EFG but who are still required by their bank to put up personal securities equivalent to over half of the loan value. Of course businesses should have some ‘skin in the game’, but this seems excessive.

“But we remain convinced that the best way to improve access to finance in the longer-term is getting a lot more competition into the banking sector. Only when firms can choose more easily where they can place their business and switch banks will we have a banking sector that is better focussed on the needs of business customers,” added Templeman.

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