Banks reject billions of SME credit requests

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Small and medium-sized enterprises (SMEs) had an estimated £1.44bn credit applications rejected between July and September.

Research from alternative finance provider Fleximize said the figure was around 28 per cent higher than the estimated value of bank credit rejections for smaller companies in Q2 2014, which was around £1.123bn.

It comes a month after the Government confirmed it will legislate to compel banks to forward details of small businesses that have been rejected for loans to alternative lending opportunities.

According to analysis of British Bankers Association (BBA) data for the second and third quarters of 2014, more than one in five applications from small businesses for overdrafts and loans are rejected by banks.

Around 12 per cent of medium-sized businesses have been turned away for similar credit.

The combined value of rejected loan applications between July and September was around £1.02bn, with an additional £417m of overdraft requests turned away.

According to Government figures, banks account for 80 per cent of UK SME’s main banking relationships. Despite this, alternative lenders are seeing increased demand as a result of a banks’ reluctance to lend.

Fleximize said the value of the SME credit applications received in Q4 2014 was more than double the value of those received in the three months prior.

The company has loaned more than £3m in less than a year since it began trading.

Max Chmyshuk, founder and managing partner at the firm, said demand for alternative lending is increasing as many SMEs continue to face difficulties obtaining finance.

Banks are often constrained by “archaic systems” and “a back-book of bad debts”, he said.

In December, the Government confirmed it will press ahead with the Small Business, Enterprise and Employment Bill. This will see SMEs put in touch with other lenders when rejected by the bank, provided the company has given permission.

Mr Chmyshuk said the announcement will “open the floodates” of new forms of lending for businesses who struggle to get bank backing.

The measure is supported by 65 per cent of SMEs, he added.