Small businesses still struggling to find affordable credit

Posted by Barry Stamp in Declined Credit on 24 September 2012 - Barry is Managing Director at checkmyfile

42.4% of credit applications have been turned down, up 1.8% on the previous quarter’s reported experience, according to latest reports from the Federation of Small Businesses (FSB).

The FSB is a trade body representing small and medium sized businesses. The FSB Voice of Small Business Index collects views of small firms from the FSB survey panel of approximately 2,600 of its 200,000 members. The quarterly report that accompanies the publication of the index provides a macro-economic picture of the UK economy from the point of view of small business owners, examining capacity levels, employment, revenues and the confidence of small firms.

”Challenging domestic conditions, access to finance and weak consumer demand are taking their toll on the optimism of small firms”, says the FSB press release accompanying the latest figures, which report that the index itself has fallen by 5.8 points to -4.5 in the third quarter of 2012.

The index is 20 points higher than in the fourth quarter of 2011 when the economy fell sharply back into recession

Amongst other things the report reveals that 21.6% of respondents had applied for finance –with the headline result that 42.4% had been declined. Unsurprisingly, almost two thirds of FSB members think the availability of credit is poor and more than 60% believe finance to be unaffordable, despite the lowest bank rate in decades.

John Walker, National Chairman of the FSB, says, "It isn't surprising that confidence fell back into negative territory as the recession entered its third quarter as growth flat-lines. The message is clear though – businesses want to grow and invest but they need a helping hand to do so. It is frustrating that bank finance is still difficult to get. No matter what is said about demand, more than 40% of applicants have been refused in each quarter this year. This has to change if growth aspirations are to be met.”

"I'm pleased that the Chancellor and Business Secretary have committed to looking at a small business bank. While it is urgent to address access to finance, it is critical to get the right structure in order for it to work properly. It must be for the long-term and not just a short-term measure for the recession."

Barry Stamp is a co-founder of Checkmyfile and is a Chartered Banker and a Fellow of the Institute of Credit Management. He can be contacted at barry.stamp@checkmyfile.com.

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As we reported back in February, the credit card giant caused controversy by writing to 161,000 of its customers to give them 30 days notice that their accounts were about to be closed.

Officially, Egg said that the credit worthiness of these account holders had either declined to such an extent that they were no longer suitable customers, or were at risk of doing so in the near future. However, thousands of disgruntled cardholders – including at least three millionaires - with good credit ratings have claimed that this is merely an excuse, and that they have been punished for paying their balances in full each month and hence not making Egg any money in interest payments.

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