Complaints soar over banks’ lending behaviour to small firms

The Financial Ombudsman received 17 per cent more complaints in 2012 compared with the previous year, according to figures obtained by UK finance provider Syscap.

Companies were most likely to complain about banks refusing to renew loans or overdrafts or renewing them with punishing interest rates or higher fees, Syscap said.

Firms were also unhappy at being offered the wrong type of finance, such as overdrafts that carry high rates and can be recalled at any time instead of loans.

New regulations brought in after the financial crisis have forced traditional lenders to cut risky financing and left many small businesses short of funds.

The government has made increasing the flow of credit to small and medium-sized enterprises (SMEs) a central part of its plan to revive the UK’s flagging econ-omy.

The rise in complaints to 612 from 522, along with other recent data, calls into question the effectiveness of its efforts.

“It is clear from the number of complaints that small businesses continue to face major difficulties when it comes to getting the appropriate kind of funding they need from banks,” said Syscap chief executive Philip White.

“We hear from small businesses that banks still use the tight credit environment as an excuse to impose high fees on their customers,” he added.

Only firms with fewer than 10 employees and annual revenues of less than 2 million euros can complain to the Ombudsman, which deals with cases where banks and customers cannot agree a settlement.

Syscap’s Mr White said SMEs’ access to funding could soon improve thanks to the government’s decision to extend and expand its flagship Funding for Lending Scheme (FLS).

Last month, the government said the FLS, which offers banks cheap credit if they increase lending to households and businesses, will last until January 2015.

Separately yesterday, Business Secretary Vince Cable said that British firms should look for funding outside the banking sector.

“Britain’s businesses cannot grow, export and innovate without proper access to bank credit. But they also need alternatives when looking for finance,” Mr Cable said.