Banking sector’s position on business lending contradicted by new evidence, says IoD

Dated: 16 February 2010

New IoD data shows that nearly 60% of businesses seeking bank finance in 2009/10 were rejected by their bank, and that 20% are financing their businesses to some extent with Credit Cards.

This evidence, which will be submitted to the Government, challenges a central claim made by some UK banks last week in the wake of the critical Public Accounts Committee report, that where demand exists for bank finance the majority of that demand is being met.

Banks’ claims not supported by IoD evidence

  • In the survey of 1,045 directors, a quarter said that they had tried to access finance from the institutions that they banked with in 2009/10. Of this quarter, 57% of directors said that their application for finance had been rejected by their bank. This evidence contradicts claims being made by the banks that the majority of lending demand is being met.

Promised Government support absent

  • Of equal concern is that promised Government support in the form of the Enterprise Finance Guarantee is not getting through. Despite Government assurances that businesses found to be ineligible for commercial credit would be offered access to the taxpayer-backed fund, 83% of those declined bank finance were not even offered information on the Government’s Enterprise Finance Guarantee.

Many businesses don’t believe they will get bank finance

  • The same IoD data also found that 1 in 5 businesses that wanted additional capital in 2009/10, didn’t investigate bank loans or overdrafts because they believed they would be declined, saddled with disproportionately high costs or required to comply with requests for additional security.

Bank lending as a source of finance has declined since 2001 – Credit Card financing now significant

  • The overall picture of finance being accessed by businesses has also changed over the past few years. IoD data from 2001 showed that 45% of IoD members were financing their businesses through bank loans and 40% through overdrafts. Today, only 28% are doing so via bank loans, 36% through overdrafts with a further 20% financing their business to some degree through credit cards.

Commenting on the figures, IoD Director General, Miles Templeman, said:

“The fact that over half of all businesses seeking finance last year were turned away by their banks is totally incompatible with the banking sector’s position on the state of lending in the UK. But what is even more concerning is that that having been rejected, 83% of businesses are not receiving information about the alternatives available to them, including the Government’s Enterprise Finance Guarantee.”

He added:

“It seems that more businesses are turning to forms of unsecured finance, such as Credit Cards to get them through their short term spending needs. The low interest rates on Credit Card balance transfers may partially explain the increasing use of this form of finance, but any contraction in Credit Card finance could see significant price hikes, adding to the already grave difficulties that many businesses are having accessing funds.”

ENDS

Contact Points

Alistair Tebbit
Head of Media Communications – Policy
Institute of Directors, 116 Pall Mall, London SW1Y 5ED
Tel: +44 (0)20 7451 3278
Mob: +44 (0)7800 850 460
Email: press@iod.com
Website: www.iod.com

Notes to editors

  • The IoD (Institute of Directors) was founded in 1903 and obtained a Royal Charter in 1906. The IoD is a non-party political organisation with upwards of 45,000 members in the United Kingdom and overseas. Membership includes directors from right across the business spectrum – from media to manufacturing, e-business to the public and voluntary sectors. Members include CEOs of large corporations as well as entrepreneurial directors of start-up companies.
  • The IoD offers a wide range of business services which include business centre facilities (including ten UK regional centres [three in London, Reading, Birmingham, Cardiff, Manchester, Nottingham, Edinburgh and Belfast] and one each in Paris and Brussels), conferences, networking events, virtual offices and hotdesking, issues-led guides and literature, as well as free access to business information and advisory services and a comprehensive Information Centre. The IoD places great emphasis on director development and has established a certified qualification for directors – Chartered Director – as well as running specific board-level and director-level training and individual career mentoring programmes.
  • In addition, the IoD provides an effective voice to represent the interests of its members to government and key opinion-formers at the highest levels. These include ministers, constituency MPs, Select Committee members and senior civil servants. IoD policies and views are actively promoted to the national, regional and trade media.
  • For further information, visit our website: www.iod.com
  • You can also keep up to date with the latest views from the IoD on twitter.com/The_IoD and at blogs.iod.com