The Independent Commission on Banking (ICB) must change the structure of banking in the UK, says the Federation of Small Businesses (FSB) in its response to the ICB’s Interim Report.
Banks and businesses seem to have reached a stalemate. The high street banks have said that there is little demand for finance from small businesses, and figures from the Bank of England issued last week, which showed that lending to small businesses fell by £1.8 billion in May, seem to back this up.
However, latest results from the FSB’s June ‘Voice of Small Business’ survey panel show that in the last 12 months, 20 per cent of members have approached the banks for credit. Of those, a third (33%) had been refused – that is the equivalent of 320,000 businesses in the last year that are not getting the credit they need.
The ICB will issue recommendations to the Government, in the autumn and has a good opportunity to change the structure of the banking sector, to make things fairer. In its response to the ICB’s Interim Report which closed today (4 July 2011), the FSB highlights that small business demand for finance has not changed greatly for some time, and this is backed-up by its survey work dating back to January 2010 as well as figures from the Business Department.
While a third (34%) of those that applied wanted to use the finance to cover cash-flow; 21 per cent needed the credit to purchase machinery and equipment and 17 per cent to expand their business. At a time when the Government is looking to the private sector to pick up the slack and boost the economy, it is imperative that small firms get the finance they need to be able to do this.
Of the 33 per cent that had their loan request turned down, 26 per cent say that it was because there was insufficient security available. Other responses included: “I refused the bank’s terms and used my own cash instead”, and another said that their bank “would not lend to pay creditors for stock”. Notably, 16 per cent were not given an explanation about why they were refused.
As a result of failing to get all the credit applied for, 40 per cent of respondents have ongoing financial concerns, almost a third (31%) have missed a growth opportunity, one in five (21%) have delayed their investment plans and 18 per cent believe they are at a competitive disadvantage.
In its submission to the ICB the FSB has said that increasing competition in the sector will be the main way to help to increase the amount of credit that is available for small businesses to tap into.
John Walker, National Chairman, Federation of Small Businesses, said:
“Experience shows that demand for credit is at its highest when the economy starts to enter a recovery period. Our survey work is indicating that businesses are starting to think about expanding or buying new machinery and it is really disappointing firms are having to abandon these plans because of the banks refusing to lend.
“The Office for Budget Responsibility is forecasting that business investment will help to strengthen the recovery. This will not happen unless the banks work with businesses to ensure that they can get the finance they so greatly need. If this does not to happen we risk the recovery remaining in a stagnant position and never fully recovering.”
Notes to Editors
The FSB is the UK's leading business organisation with more than 200,000 members. It exists to protect and promote the interests of the self-employed, and all those who run their own business. More information is available at www.fsb.org.uk
The survey is based on 1,633 responses from the June 2011 FSB ‘Voice of Small Business’ Survey Panel of FSB members which took place between 13 and 24 June 2011. For full results, go to www.fsb.org.uk/fsb-survey-panel
There are 4.8 million small businesses in the UK. 20 per cent of this is 960,000 and a third of this is 320,000.
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