The Independent Commission on Banking must change the structure of banking in the UK to help small companies get finance, says the Federation of Small Businesses.

The Independent Commission on Banking (ICB) must change the structure of banking in the UK to help small companies get finance, says the Federation of Small Businesses.

In a submission to the ICB, the FSB says that increasing competition in the sector will be the main way to help to increase the amount of credit that is available for small businesses to tap into.

Results from the FSB's June ‘Voice of Small Business' survey panel show that in the last 12 months, 20 per cent of FSB members have approached the banks for credit. Of those, a third (33 per cent) had been refused – the equivalent of 320,000 businesses in the last year that are not getting the credit they need.

The findings are in contrast to the banks’ view that there is little demand for finance, says the lobbying group.

While a third (34 per cent) of those that applied wanted to use the finance to cover cash flow, 21 per cent needed the credit to purchase machinery and equipment and 17 per cent to expand their business.

Of the 33 per cent that had their loan request turned down, 26 per cent say that it was because there was insufficient security available. Other responses included: ‘I refused the bank's terms and used my own cash instead’, and another said that their bank 'would not lend to pay creditors for stock'. Notably, 16 per cent were not given an explanation about why they were refused.

FSB national chairman John Walker says, ‘Experience shows that demand for credit is at its highest when the economy starts to enter a recovery period. Our survey work is indicating that businesses are starting to think about expanding or buying new machinery and it is really disappointing firms are having to abandon these plans because of the banks refusing to lend.

‘The Office for Budget Responsibility is forecasting that business investment will help to strengthen the recovery. This will not happen unless the banks work with businesses to ensure that they can get the finance they so greatly need. If this does not happen we risk the recovery remaining in a stagnant position and never fully recovering.’

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Related topics: Bank loans, Lending