The financial sector is ignoring businesses with high growth profiles, leading to a "discouraged economy in which innovation, investment and dynamism and stymied by a self-serving and inflexible banking sector", according to Will Hutton, executive vice chair of The Work Foundation.
In fact, only 15% of the small businesses tried to apply for a loan or an overdraft over the past 12 months, according to a recent report issued by BDRC Continental. This emphasises the saddening truth that only SMEs that have established a sound relationship with banks can renew existing facilities.
To add salt to the wound, the ACCA said that only SMEs with a sound bookkeeping system could have easier access to finance, while "the rest are more likely to get turned down for finance outright". After all, "only one in five SMEs has a person with any financial training in charge of their finances". One may wonder how many businesses could afford the money and time for an external auditor to keep an extremely detailed accounting record.
The weak support from the financial sector to the young, fast-growing SMEs is hindering economic growth and diminishing their capacity to create jobs. High-growth firms are even more endangered by the situation as they need the essential funding in order to break through the initial stage of the business. Businesses with little funding create a "self-reinforcing cycle of less innovation, less investment and less dynamism", Will Hutton noted.
SMEs owners have slowly formed a perception that they would not get credit even if they approach banks, and may even get more stringent overdraft limits just by asking for extra cash. Katja Hall, CBI chief policy director said "this shows that banks need to work hard to build stronger relationships with their smaller business customers".