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Every year, thousands of small businesses see their loan applications rejected by the big Banks. Figures from the British Business Bank (BBB) suggest that this equates to around £4bn in loans annually – a figure that suggests that many UK SMEs (small and medium enterprises) are missing out on the investment that they need to be able to compete and grow.
This lack of lending matters. The Hampshire Trust Bank and Centre for Economics and Business Research believe that SMEs will contribute £241 billion to the British economy by 2025. How much more could these companies contribute if they had access to the money that they need?
Politically this matters. SME company’s make-up most of the UK’s employers and businesses. They contribute significantly to tax receipts both directly as tax payers and indirectly as employers with employees who spend their wages. With Brexit on the horizon EU funds that support small UK businesses could be pulled and UK companies, which need to be competitive globally if Britain’s economy is to thrive, will face a short-fall, unless of course the UK Government plugs the gap.
British Banks are lending, but to larger businesses with a long track record of profitability. With debt an issue and balance sheets that need, well balancing, capital adequacy requirements have been overhauled and they want surer bets.
The good news is that whilst in the past if the Bank said no there was really nowhere else to go that is no longer the case. Peer-to-peer lending to businesses and other alternative lenders like the ‘Challenger Banks’ have stepped in and are filling the void. This doesn’t mean that they are lending indiscriminately, but they are interested in building their loan books and will often lend to businesses that the Banks will not.
Sadly, the BBB believes that around 38% of small businesses give up or cancel plans if the first finance provider that they contact rejects them.
The BBB want to see more banks offer a referral system that directs companies elsewhere if they refuse their loan. This would certainly help to improve the awareness that there are more options for businesses than just the banks if they want a loan.
Referral systems could include systems like Businessagent.coms loan calculator. It is free to businesses and returns quotes from over 70 lenders, including challenger banks and P2P platforms, without negatively impacting a business’s credit score. It makes it much easier for businesses to see the options available to them and in some cases rates are more competitive than the banks could have offered.
If the UK government wants to see SME businesses thrive and Brexit work redirecting refused bank loan applications needs to happen.
Tagged: British Business Bank small businesses growth slowing business loans SMEs investment The Hampshire Trust Bank Centre for Economics and Business Research debt capital adequacy
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