April 27, 2010

Interest rates turn SMEs away from banks

by Jan Harris

A survey by the Federation of Small Businesses (FSB) shows that UK SMEs are still finding it tough to secure bank funding, and are increasingly seeking alternative sources of finance.

The survey, of over 1,400 FSB members, found that only 18 per cent of SMEs have sought new credit from banks over the past two months, and only half of these applications were successful.

Despite the low base interest rate, costs have increased significantly for the majority of SMEs with existing bank finance.

While the cost of bank funding fell for just one per cent of the firms surveyed, it rose for 16 per cent of them, over the last two months.

Finance costs increased by between 10 percent and 14 percent for many of the firms surveyed, a level which the FSB called ‘highly unreasonable’.

The FSB welcomed the introduction of a Small Business Credit Adjudicator to help ensure that small firms are dealt with fairly by big banks.

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