Bank Practices could be discouraging Commercial / Business Lending

12 December 2013


Some practices used by banks could be preventing small to medium-sized enterprises (SMEs) from applying for commercial mortgages and other forms of finance, new research suggests.

A YouGov survey found that nearly two-thirds (64 per cent) of these firms have not sought additional finance over the past two years from banks or any other lenders.

One in three (34 per cent) said they did not want to take on any more debt and a fifth (21 per cent) said they had concerns about the economic climate.

However, 20 per cent of SMEs have been discouraged from borrowing by interest rates and 16 per cent did not want to go through the process of setting up a new facility.

Other factors that have put firms off include the terms and conditions of the deal on offer (12 per cent), the likelihood of being turned down (11 per cent) and the security demanded by the bank (ten per cent).

Simon Mottram, director of financial and professional services at YouGov, said: “There has been a lot of debate about whether banks are hampering lending to small and medium-sized businesses and limiting growth. Our research suggests it is more nuanced than a simple ‘yes/no’ answer.

“Many businesses don’t apply for additional finance because they do not want to take on debt in times of economic uncertainty; however, the banks are often behind the secondary reasons for not borrowing more.”

Another finding of the study suggested that more than a third (36 per cent) of the UK’s smaller firms have sought finance from non-traditional sources.

More than one in five (22 per cent) have borrowed from business angels or private investors, while the same proportion have sought finance from the government or public sector bodies.

Another 21 per cent of SMEs have gone down the crowd funding route, according to the research.