Business finance applications succeed but demand falls

The majority of applications for business finance from small and medium enterprises succeeded in Q3, according to the latest SME Finance Monitor.

The figures show that 79 per cent of overdraft applicants, and 63 per cent of loan applicants were successful. However, the figures also show that demand for business finance amongst SMEs has fallen as the number of SMEs likely to apply for or renew a loan or overdraft fell from 15 per cent in Q1-2 to 12 per cent in Q3.

The most commonly cited barriers to applying for finance were ‘discouragement’, where they may have approached a bank, but been put off by a negative response, and the economic climate.

Commenting, Shiona Davies, Director at BDRC Continental, who conducted the research, said: “This latest research shows that demand and predicted future demand for SME finance remain low, and that the current economic climate is clearly affecting SMEs’ appetite for external funding. Most of those that do apply are successful. “

To combat falling demand, banks must re-engage with SMEs, and regain trust according to John Longworth, director general of the British Chambers of Commerce (BCC), who said: “In tune with the deteriorating economic climate, demand for finance from businesses is falling. Nevertheless, it is quite clear that relationships between some small- and medium-sized businesses and banks are fractious. The fact that some firms are discouraged from seeking finance on the assumption that they will be refused highlights that a lack of trust continues to be a problem.

“Changes within the banking industry will not happen overnight, and it faces challenges around assessing risk in a difficult economic climate and having to meet new regulatory requirements. However initiatives such as an appeals process and new lending codes will help to restore the trust that is hard to earn but very easy to lose. It should also be made easier and quicker for businesses to switch between banks so that poor service provision can be punished in a competitive market.”