Increasing numbers of small firms are struggling to secure funding for their business operations, a new survey has claimed.
The study, conducted by Cambridge University’s Centre for Business Research, found that, of the responding businesses that had sought finance in 2007, some 29 per cent were refused outright or in part. In 2004, the last time the survey was carried out, that figure was 26 per cent.
But while more businesses are being turned down, funding needs have climbed sharply in the three years between 2004 and 2007.
The average request for borrowing in 2004 was £82,000. In 2007, the average had risen to £470,000 among those seeking funds.
The proportion of businesses that applied for external finance actually fell in 2007 across most industry sectors, although manufacturing firms registered an increase in applications from 39 per cent to 45 per cent.
Of the businesses polled for 2007, over half (56 per cent) had asked for new or extended overdrafts during the past three years, while in the previous three-year period, between 2001 and 2004, only a third (32 per cent) went to their banks to negotiate overdrafts. However, one in ten firms saw their requests denied, and 16 per cent were turned down when applying for credit cards.
Businesses enjoyed more success when seeking less common types of funding such as asset-based finance, or factoring, and equity. Here 93 per cent of applications were granted. Leasing and hire purchase applications met with an 88 per cent acceptance rate, while 85 per cent of business mortgages were agreed.
The survey also showed that a large number of firms were failing to make use of the capital allowances available on business assets. Barely a third of those that responded to the survey knew of the allowances, with just 9 per cent actually claiming them.
Given the time spread covered by the research, it seems that many small businesses were already experiencing difficulties in arranging finance before the advent of the credit crunch last year.
Commenting on the findings, Nick Palin, the director of finance and administration at the Forum of Private Business (FPB), said: “The research shows that, although the funding requirements of small businesses rose steadily during 2007, the likelihood of banks awarding funds fell just as steadily.”
Mr Palin added: “The credit crunch has made accessing finance much more difficult. It is important that the Government streamlines the application process and that small firms consider switching banks, or seek out the alternative funding streams. Businesses are also not cutting costs where they could – for example, £200 million in small business rate relief goes unclaimed each year.”
Date:29 August 2008
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