Access to finance for businesses remains difficult, says IoD
New data released today by the Institute of Directors (IoD) reveals that businesses are still having difficulty accessing finance from their banks despite a fall in decline rates.
Key Findings:
- 1 in 3 firms that applied for finance in the time period 1 January 2010 – 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.
The Survey
From a survey of 899 company directors carried out at the beginning of June 2010 the IoD can reveal the following data:
Applications and decline rates for finance
- 39% 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 – June 2010.
This compares with an application rate of 25% in our last 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 which applied for finance in the time period 1 January 2010 – June 2010, 33% had an application for finance declined by a bank.
This compares with a decline rate of 57% in our last survey which covered the longer time period, 1 January 2009 to December 2009.
Security requested against loans
- 37% of IoD members stated that in the period 1 January 2010 – 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 our previous survey having noticed an increase in the period 1 January 2009 to December 2009. No respondents in the latest survey noticed a decrease in the amount of security being requested.
Commenting on the survey results, Miles Templeman, Director-General of the Institute of Directors, 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.”
