A fifth of all small business owners who have been refused a loan are completely in the dark about why they were rejected, it has been revealed.
The most common reason given to businesses that are told why their loan was denied is inadequate security. More than 40% were given this reason, according to the research by credit referencing agency Graydon UK and the Forum of Private Business (FPB).
A further 30% were dismissed because the sector they operate in is deemed “high risk”, while 27% are let down by their credit score.
Martin Williams, managing director of Graydon UK, said: “It is vital that business owners and managers enter into a conversation with their bank in order to find out where their perceived business challenges lie. This will allow them to address these issues in future applications, considerably improving their chances of securing funding.
“By seeking an explanation from the bank as to why their application was refused, small business owners may find their bank can actually help, through assisting in the development of a more robust business plan or providing intelligence into why they are already at the limit of their lending capacity for their specific region or industry sector.”
Phil Orford, chief executive of the FPB, said business owners needed to make sure they were presenting proper financial information, but also called on the banks to provide detailed reasons when loan applications are turned down.
“We have entered a new business landscape where a more collaborative approach between businesses and banks is required if the future of enterprise and the economy is to be a healthy one,” he said.
“Securing finance is the main priority of the vast majority of small businesses. Economic conditions remain extremely tough and, even when the economy does recover substantially, growth finance will be important to allow them to keep up with demand.”
© Crimson Business Ltd. 2010
