Firms hit by a hike in borrowing costs

Deputy Business Editor

Friday 22 June 2012

MORE than one-third of small and medium-sized companies in Scotland are now paying more for their financing, according to new data.

JOHN SWINNEY: The Finance Secretary said the right proposition is key to securing lending. Picture: Stewart Attwood

Custom byline text:

greig cameron deputy business editor

The Scottish Government's SME Access to Finance found the proportion of businesses being charged a greater amount, either in fees or interest rates, when renewing lending has leaped from 29% to 37%.

However, the report suggests access to finance is improving with 73% of SMEs applying for credit in the previous year receiving what they wanted, an increase from 66%. The survey, which questioned more than 1000 businesses of between one and 249 employees in February this year, also found the outright rejection of applications dropped from 21% to 15%.

It was also revealed Lloyds Banking Group and Royal Bank of Scotland have seen their combined market share in the SME lending sector fall from 77% in 2010 to 70% in February 2012.However, business organisations warned the lending environment is "more difficult" than the report suggests.The Federation of Small Businesses cited a survey where about 13% of its members did not apply for credit because they believed it would be rejected.Colin Borland, the Federation of Small Businesses' head of external affairs in Scotland, said: "It's encouraging that a larger proportion of Scottish businesses are seeking alternatives to RBS and Lloyds Banking Group. However, we still believe that more needs to be done to broaden the business finance options for Scottish firms. Our own business finance research suggests a more difficult environment than this report depicts. We're a long way from being able to report that the problem is solving itself."Finance Secretary John Swinney said: "Any evidence of increased lending to SMEs is good news for our economy and will be key in a sustained recovery."Lending criteria are stricter now but these figures show that accessing finance is possible with the right proposition. Businesses must present a robust, commercially sound proposition."Of those turned down for lending, 46% were told at the initial stages – either when first raising the possibility of financing with the bank or after initial discussions – which is a slight decline from 48% in the previous survey.However, there was a sharp rise from 30% to 43% in the rejections made following the submission of a formal application. Fewer firms put forward cases for new borrowing, 9% down from 11%, while 32% applied to renew existing facilities and 3% asked for new borrowing and renewals in the 12 months to February.The majority (74%) of firms applying for new lending received the full amount, with 9% securing some funding and 17% getting none. Businesses perceived that overdrafts, loans or mortgages and grants were the most difficult types of funding to secure. About 40% of all secured loan applications were knocked back, an improvement of 5%, while the rejection rate of unsecured loans increased by 3% to 25%.Of the firms taking part, 60%, expect to stay the same size or become smaller – up 8% on 2010.David Watt, executive director of Institute of Directors in Scotland, was surprised access to funding appears to be improving.He said: "These figure do not support the anecdotal evidence that we have."In a separate development last night CBI director-general John Cridland outlined a range of proposals to increase finance.Those included a new round of quantitative easing, changing solvency rules to enable insurance companies to invest and easing liquidity regulations to make it easier for banks to lend.

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis. If you're a relatively new user then your comments will be reviewed before publication and if we know you well then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules, which are available here.

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

Firms hit by a hike in borrowing costs

Commenting & Moderation

MOST READ

SPONSORED LINKS

MOST COMMENTED