Businesses shy of going to the banks

In a survey of over 1,400 FSB members, only 18 per cent of businesses have applied for new credit, with 50 per cent of these successful in their application. As the state owned banks have been given new lending targets by the Government the survey also revealed that just over a third of businesses (36%) had their application refused with 12 per cent yet to find out the bank's decision.

For businesses with existing finance, the survey also showed that 16 per cent had seen an increase in the cost over the last two months. Of these, 44 per cent saw between a two and three per cent rise, but more worryingly 12 per cent saw interest rates hiked anywhere between 10 and 14 per cent, at a time when the base interest rate is at an all time low. Only one per cent of respondents had seen the cost decrease.

The FSB has been critical for some time now, of the banks and their lending criteria and believes that the introduction of the Small Business Credit Adjudicator announced in the Budget will help to ensure small firms are given a fair deal and a right of appeal against decisions made by big banks.

John Walker, National Chairman of the Federation of Small Businesses said:

"Trust needs to be restored between banks, bank managers and business as credit conditions remain tight for small firms. We hope the next government - of whatever hue - will look at the best way to address the issues in the banking system to ensure that the UK has the necessary financing structures to support further economic recovery.

"Small businesses continue to bear the brunt of the financial crisis and are being penalised with extortionately high interest rates. At any time, not least when the economy is on such a fragile path out of recession, a 10 to 14 per cent increase in costs is highly unreasonable."