Bitterness and anger as banks fail to lend
By Ian Dunt
New data showing persistently low levels of bank lending have prompted a tirade of anger at the sector and the government.
Research published today by the Institute of Directors (IoD) shows nearly 60% of businesses seeking bank finance in 2009/10 were rejected by their bank, and that 20% are financing their business to at least some extent with a credit card.
The figures corroborate a damning public accounts committee report last week which concluded the Treasury does not know why state-owned banks are still not lending and has few resources it can use to force them to do so.
In a bad turn for the government, the research showed that government support in the form of the Enterprise Finance Guarantee is not getting through.
The government promised that businesses found ineligible for commercial credit would be offered access to the taxpayer-backed fund, but 83% of those declined bank finance were not even offered information on the scheme.
“This research makes a mockery of Gordon Brown’s claim to be giving ‘real help now’ to businesses and to have extracted legally binding guarantees from the banks to lend more in exchange for taxpayer support,” said Philip Hammond, shadow chief secretary to the Treasury.
The survey of 1,045 directors found a quarter tried to access finance from the institutions they banked with in 2009/10.
Of this quarter, 57% of directors said that their application for finance had been rejected by their bank. This evidence contradicts claims being made by the banks that the majority of lending demand is being met.
“There is a huge gap between what the banks tell us and the experience of companies on the ground,” said Vince Cable, Liberal Democrat Treasury spokesman.
“This evidence confirms that large numbers of small and medium sized businesses are still having difficulty in getting credit on reasonable terms.
“The nationalised and semi-nationalised banks owe their existence to us, the taxpayer and they must make good on their commitments to increase lending at reasonable rates.”
The research shows the manner in which businesses are financing themselves is changing rapidly.
IoD data from 2001 showed that 45% of its members were financing their businesses through bank loans and 40% through overdrafts. Today, only 28% are doing so via bank loans, 36% through overdrafts and a further 20% to some degree through credit cards.
“It seems that more businesses are turning to forms of unsecured finance, such as credit cards to get them through their short term spending needs,” said IoD director general Miles Templeman.
