The loans market for SME’s

The small-business sector in the UK has been struggling recently because of the lack of loans available for them meaning they are unable to grow their businesses as quickly as would be possible if they were provided financing.

Loans are often very useful for small companies as they allow them to employ new staff, and purchase new equipment, which allows them to expand their businesses at a faster rate than they would without the additional capital.

The SME Finance Monitor which has been published by BDRC Continental has recently shown that just over 40 percent of SME’s have been using external finance, which is a significant reduction on the over 50 percent figure that was seen three months previously in the last survey.

It is estimated that one third of businesses which applied for loans were turned down, and around 20 percent who applied for overdrafts were also rejected. This has caused SME’s to lose confidence in lenders.

The survey highlighted that only 40 percent of SME’s thought that they would be granted an overdraft facility if they asked. This is a significant reduction again from the figures in the previous quarter, which were closer to 50 percent. This lack in confidence has meant that more business owners are likely to use their own savings in order to fund further investment in the company.

The banks being reluctant to loan is a continuing headache for George Osborne who has attempted to make easing of credit an important element of his objectives. He has recently sanctioned numerous initiatives in order to encourage lending, but so far they have not gained a significant amount of momentum and have all been rather limited in their scope. Ministers know the advantages of increasing lending to SME’s, but they seem to be struggling to get projects that will actually make it happen off the ground.