A survey by Touch Financial found that more than half of small businesses have been refused funding by their bank in the last six months. Of those refused a third said they had been given no justification or explanation for how the decision was made.
The survey questioned small businesses on their finance options and their opinions on the current lending market. Of those surveyed 59 per cent had applied for additional funding, such as a bank loan or overdraft, at some point in the last six months. Of these businesses 55 per cent had seen their application declined.
A third of businesses that were unsuccessful were given no reason as to why their application had been declined. Small businesses are often unsuccessful at obtaining traditional bank lending because they do not posses a strong credit score.
Businesses should look over their own credit report before approaching a lender so they can resolve any issues that may prevent them from being successful beforehand. A strong credit score and trading track record demonstrates to lenders that the business is viable and can increase the chances of success. Read Graydon’s tips on improving a business’ credit score to maximise the likelihood of funding.
The survey also found that the current ‘absence of adequate funding provisions for SMEs’ was affecting business confidence. The majority of businesses questioned do not feel supported by the banks and many feel the Government should be doing more to help.
More than four out of five (81 per cent) of the participants said they believed banks do not support small businesses. When asked ‘Is the Government doing enough to support small businesses?’ only two per cent answered ‘yes’. Of the remainder, 56 per cent responded ‘No’ and 46 per cent indicated that they believed the Government ‘Could do better’.
Simon Carter, Director of Touch Financial, said, “Any business, regardless of size or sector, should be given access to finance, if not through ‘traditional’ bank lending, then via a number of alternative funding solutions.”
Alternative sources of funding, such as asset based finance and crowdfunding, are becoming increasingly popular. As banks have restricted lending since the recession businesses are turning to alternative providers more and more. However, businesses still need to be aware that their credit score will still affect the outcome no matter what type of funding they choose.
The survey also found that many small businesses were uninformed of the alternative options open to them. Participants were quizzed in their awareness of Government and bank-led initiatives, more than two in five (42 per cent) had never heard of any of them. Start Up Loans had the highest awareness, however only a third of respondents had come across it.
Mr Carter added, “Small business simply aren’t getting the information and the support they need of they are to be the primary engine for growth as the Government has suggested.
“SMEs are in danger of being left up the proverbial creek and being told there are no more paddles.”
Lending is vital for small businesses to grow and meet their potential. Being aware of how a business’ credit score can affect the success of funding and keeping up to date with initiatives is crucial for ambitious small businesses.