Banks tighten purse strings on SME credit

Value of rejected credit up 28% in 2014 Q3.

Banks in the UK rejected £1.44 billion of SME credit in the third quarter of 2014, according to research by Fleximize.

This figure represented a rise of 28% in rejected applications from the second quarter of last year; marking a troubling trend for SMEs reliant on credit services.

The total figure for Q3 is made up of £1.023 billion of refused loans and £417 million of unsuccessful overdraft applications.

The report comes in a week of worrying news for SMEs looking to secure credit.

Separate research released yesterday by Shelley Stock Hutter (SSH) suggested that credit ratings for smaller private companies are in disarray – with wildly different ratings across finance firms.

Fleximize founder and managing partner Max Chmyshuk said that the trend was turning SMEs towards alternative lenders, which is benefiting his industry.

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“The recent government announcement that banks will be forced to forward on the details of SMEs they reject for funding to alternative lenders will ‘open up the floodgates’ to new forms of lending for businesses,” he said.

Bank of England credit survey

The Fleximize research tells a similar story to the Bank of England Credit survey released last week.

A net figure of 14.6% of lenders reported they believed demand for credit decreased in the last few months of 2014 – reflecting decreased activity in the area.

British Cambers of Commerce director of policy and external affairs Adam Marshall said the weakening of available credit “reinforces the case for more radical action”.

“[Action] by financial institutions, the regulators, the ministers building up the British Business Bank and the Bank of England itself, which must do so much more to build up a liquid market for SME debt,” he said.

Further reading on SMEs: Top 5 recruitment mistakes and how to avoid them

Praseeda Nair

Kellen Rempel

Praseeda was Editor for from 2016 to 2018.

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