Small businesses – already experiencing issues over obtaining loans – need support with access to finance ahead of a possible lending squeeze, claims a report.
Only two-fifths of requests for credit are currently successful at an all-time low, according to Small Business Index data compiled by the Federation of Small Businesses (FSB).
Pressures on lending have come from the financial turmoil following the pandemic, Russia’s invasion of Ukraine, the stagnation of the economy and inflationary pressures.
Success rates on applications for loans have halved since a peak in mid-2020.
The “Credit Where Credit’s Due” report by the Federation, which makes a raft of recommendations, outlines the way in which small businesses already have problems acquiring finance for a variety of reasons.
Traditional bank loans, despite being commonly associated with small business finance, are considered the second-most difficult to acquire, ahead only of equity.
Difficulty in accessing different forms of finance is linked to application processes being too long and the inability to speak to anyone about the process itself.
“Small businesses need Government support to improve this access,” said Robin Abrams, FSB Finance and Banking Policy Champion.
“The Government should expand and encourage uptake of programmes like the Bank Referral Scheme, expand access to British Business Bank-backed loans, and deliver on its 2019 manifesto promises to improve the Business Banking Resolution Service.
“There is a risk that the UK financial market may begin squeezing lending to small businesses, reminiscent of the period following the 2008 financial crash.
“It is vital that the credit tap doesn’t turn off in the same way it did following the crash.”
- Seventy per cent of manufacturing small firms have applied for finance over the last five years.
We are a small business that current factors its debts.
We have recently Oct 22 approach Lloyds Bank, our incumbent sponsor to support an increase to our working capital and extend our credit insurance in light of winning of new business with an existing Customer who have a proven payment record. On our approach to the extension of facility value and insurance back in Oct 22 our funding in respect of the specific customer with an Experian Credit rating of £390,000 was withdrawn and restricted to (10%) from the agreement funding agreement level of 90%, overnight with no notice. This matter of funding is still not resolved at 4 January 2023.
This immediate action with no notice would have collapsed many business had the Director no stepped in.
To ad insult to injury Lloyds advised in December 2022 that from their assessment of the business external professionals would be required to enter the business, at the businesses expenses given the over funding position created by the funding reduction implemented 4 November 2022.
I recently contacted our bank to request an increase in overdraft to support additional working capital needs following the acquisition of more work with industry wide credit periods ranging from 2 weeks to 3 months. They are all established contracts on no different terms than previously just more volume but of changing level month on month. My request for the increase to make cashflow management (settlements come in at all sorts of different points in a month) more flexible was refused.
The application was put through a more stringent assessment because we had a BBL. This was surprising to me as the loan had been properly serviced and, at the end of the day, is government backed so is secure lending rather than unsecured from the bank’s perspective.
Perhaps properly serviced government support for pandemic pressures need to be set aside by high street banks when assessing very normal small business requirements on accounts that are also properly conducted – that would help a lot of us. The result of not having the flexibility needed to manage our business not only means more ‘juggling’ to pay the bills but also the perception of hard core borrowing rather than the reality of a fluctuating overdraft level within facility.