Small companies are increasingly struggling to secure affordable bank loans, according to research that also found these businesses are carrying an additional £36bn of debt compared to before the coronavirus crisis.
The Federation of Small Businesses, a lobby group for the UK’s smallest companies, said a survey of members found that successful applications for bank loans and other financing had dropped “precipitously”. Less than half of applications were successful in the third quarter of 2022, compared to nearly two in three before Covid, said the FSB in a report. The lobby group found the smaller a business was, the less likely its request for a bank loan was to be approved. Interest rates on loans offered to small companies have been rising, as the Bank of England tightens monetary policy in response to high inflation. Nearly a third of small businesses that applied for finance in the third quarter were offered an interest rate of 10 per cent or more.
Three in 10 companies told the FSB in its survey that they thought unfair clauses and provisions were included in applications for bank loans and other financing. The FSB report comes as small businesses worry about how to repay or refinance the large amount of debt they accumulated to survive the pandemic, when many companies took on loans for the first time.
Small and medium-sized enterprises were carrying about £203bn of debt in September 2022, compared to £167bn in January 2020, just prior to the pandemic, according to FSB analysis of BoE data.