Small businesses are not applying for loans from banks, preferring to rely on their savings instead, according to new research.
A survey of 2,000 small businesses from across the UK, carried out by Survey Monkey on behalf of Freelancer.co.uk, found more than half (51%) hadn't applied for a loan as they believe banks' lending criteria is still too difficult for them to qualify for.
Of those which had applied for a loan, 61% had been rejected. Once rejected:
- 20% had to borrow money from friends and family
- 42% had to use up their savings
- 10% had to use their overdraft facility
- 10% had to stop trading until they could find the money
- 20% said the essential investment to the business wasn’t undertaken
“The data from the Funding for Lending Scheme has shown that banks are still not willing to support small businesses, which are vital to the success of the UK economy,” said Matt Barrie, Freelancer.co.uk's chief executive officer.
“Many are having to borrow from friends and family, while many others are simply not investing and some are even closing down their businesses.
"As the chancellor George Osborne admits that he won't be able to meet his deficit reduction target, the banks and the government should look again at how they can give support to the UK's small businesses."
The survey also asked: 'If the bank was the only source of funding available and they said no, would it have prevented you from expanding?'. More than three quarters 76% said a rejection would prevent them from expanding, raising questions about whether enough is being done to encourage growth in the small business sector.
Interestingly, fewer than 10% of businesses across the UK said they would use their overdraft in the event of a bank loan rejection - mirroring earlier results from the British Bankers' Association in November.
Regionally, Scotland's businesses appear to be suffering the most, with 82% saying they would be prevented from expanding by not having a loan approved.
In addition, 70% of Scottish small businesses which had applied for a loan had been rejected.
A spokesman for the British Bankers Association told Huff Post UK: "Would-be borrowers should never be put off approaching their bank. In the last quarter banks' approval rates were above 80% for smaller businesses and above 90% For medium businesses. £6.2 billion of new facilities were approved, up from £5.9bn in the previous quarter.
"We know from the SME Finance Monitor that around two-thirds of the UK's businesses have not requested finance in the past year, and do not intend to do so in future. But that leaves one-third who have - or expect to have - financing needs in future.
"As confidence grows in the economic recovery, we would encourage those businesses which are currently holding off borrowing to talk to their bank now. Banks are lending, and they are keen to have contact now with viable businesses."