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Raising finance remains difficult for early stage business

The latest UK Finance’s SME Finance Monitor shows that it remains difficult for businesses trading less than five years to raise finance through a bank overdraft or loan, says ICAEW Head of Enterprise Clive Lewis.

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Clive Lewis

July 2018

According to the UK Finance’s SME Finance Monitor, in the 18 months to the fourth quarter of 2017, businesses trading less than two years were only 45% successful in raising an overdraft and 12% in raising a loan from a bank. The figures for businesses trading for more than two years but less than five years were 47% for an overdraft and 38% for a loan.

But for businesess trading over five years the success rate was 77% for overdrafts and 59% for a loan. This compares with 80% of applications for finance from businesses of all ages being successful.

Businesses can appeal against the banks decision and a ‘second pair of eyes’ within the bank will reconsider the finance application. In the early years of this appeal process 40% of appellants were successful in getting an offer of finance, but the percentage has dropped in recent years.

Banks who refuse businesses finance are legally required to refer them to the four government approved finance platforms, after seeking the businesses permission. These platforms have a range of debt finance providers who may be able to offer finance to these unsuccessful businesses.

Banks are also developing their online application processes with some offering very quick responses for unsecured loans, although personal guarantees may be required.

Other figures from the survey show only a small percentage of applicants for overdrafts or loans seek advice before applying. Only 8% of overdraft applicants sought advice. For loan applications the figure for businesses seeking advice was 18%, with 12% of applicants seeking a loan of less than £100,000 but 38% if the loan was more than £100,000.

ICAEW has lobbied government that the platform referral process needs an advice option, so far without success. It is hoped that the platform developed as a result of the cooperation between ICAEW and Enterprise Nation will demonstrate the importance of businesses receiving advice from finance professionals.

Read the SME Finance Monitor 

Clive Lewis is ICAEW Head of Enterprise

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