Where’s the trust between SMEs and banks

A recent survey by the Federation of Small Businesses (FBS) indicates that there is a lack of trust between banks and small businesses that is contributing to the problems faced by SMEs.

Their survey of more than 1,400 businesses found that only about 18 percent of them had even applied for new lines of credit from banks, and of those, only about half were approved.  About 36 percent of the applications were refused, with around 12 percent still awaiting the bank’s decision.

FBS National Chairman John Walker said that the government, current and future, needs to be aware of the situation and take measures to support small business and thereby the recovery of the economy in general.

An alarming number (16 percent) of the businesses surveyed reported an increase in the interest rate of existing financing during the past two months.  Some saw a rise of only two or three percent, but others were hit with ten to fourteen percent increases in their rates even while base interest rates are at “an all time low.”

Small businesses may get some help from the new Small Business Credit Adjudicator that was announced by Chancellor Alistair Darling in March.  This is meant to allow businesses to appeal credit decisions made by lenders, and presumably to get a better deal with respect to rates and terms.

John Walker also mentioned that especially in a “fragile” economy, small businesses should not be hit with higher interest rates that further undermine their financial security