More Than 1 In 5 SMEs Have Lending Terms Altered

UK SME Overdraft Use Stands At £11.9 Billion, Figures Show

14.01.2014

Fergal Dowling, Partner | +44 (0)121 214 5476

Many small businesses have had their lending terms altered by banks in the past five years.

According to a new study by rebuildingsociety.com, 21 per cent of small and medium enterprises (SMEs) have been subjected to some form of change by their lender.

Nearly half of this number said the interest rates on their overdrafts had been hiked upwards, while approximately one in three firms confirmed their lending facilities had been cut. This is despite the fact just one per cent of the SME owners polled have defaulted on a loan.

With the economy starting to improve, more startup organisations are looking to expand.

Although the Bank of England's recent Credit Conditions Survey suggested that small organisations are starting to find it easier to gain access to vital funding, there are plenty of firms who think their bank could be more accommodating.

The rebuildingsociety.com findings showed 11 per cent of entrepreneurs who planned to grow their business in the past five years did not even ask their bank for a loan because they did not believe their application would be successful.

Of those who did attempt to borrow money, around 31 per cent were refused, with the most common reason for this being the bank did not agree with the size of the loan. One in ten firms said they were not given a reason when their applications were turned down.

As of the third quarter of 2013, UK SMEs had a collective overdraft of £11.9 billion, which was up from £11.2 billion in the preceding three-month period.

Daniel Rajkumar, managing director of rebuildingsociety.com, believes SMEs deserve greater transparency when accessing credit.

"Small businesses need all certainty in their finances as they look to grow, instead of worrying about their lending facilities being adjusted," he commented.

"Our research shows the disparity between those that have defaulted, versus those whose facilities have been adjusted or withdrawn."

Expert Opinion
It is obviously a concern to see that some small businesses have experienced these problems in recent times, as we have repeatedly that access to finance remains one of the greatest challenges that innovative companies as they look to expand operations and fulfil their ambitions.

"However, it should be added that recent research has shown that acquiring finance is becoming easier in some cases and hopefully this will feed through to all small businesses in the coming months.

"We would also encourage SMEs to consider all of the finance options available to them before agreeing to any specific deals and this is another area where expert advice from legal professionals could prove very useful for businesses looking to take the next step."
Fergal Dowling, Partner