Businesses turn to credit cards for finance
RESEARCH has revealed that small firms are still struggling to access finance, with a rising number of bosses borrowing on credit cards to see them through.
A study by the Institute of Directors shows that nearly 60% of businesses seeking bank finance in 2009/10 were rejected by their bank, and that 20% are financing their businesses to some extent with credit cards.
The findings of the survey of more than 1,000 directors nationwide, is at odds with claims made by some major banks that they are ready to lend.
Barclays – one of the biggest banks said in its annual results today it had lent an extra £35bn last year – around half to businesses and half to households. The lender also posted profits of £11bn.
In the IoD survey, a quarter said that they had tried to access finance from the institutions that they banked with in 2009/10. Of this number, 57% of directors said that their application for finance had been rejected by their bank.
The research also highlighted that Government help to cash-strapped small firms, in the form of The Enterprise Finance Guarantee is not getting through.
Despite Whitehall assurances that businesses found to be ineligible for commercial credit would be offered access to the taxpayer-backed fund, 83% of those declined bank finance were not even offered information on the Government’s Enterprise Finance Guarantee.
The IOD said there was evidence too that bosses were borrowing on credit cards – which carry a far higher interest rate – to help fund their businesses.
In 2001 it said that 45% of members were financing their businesses through bank loans and 40% through overdrafts.
Today, only 28% are doing so via bank loans, 36% through overdrafts with a further 20% financing their business to some degree through credit cards.
IoD director general, Miles Templeman said: “The fact that over half of all businesses seeking finance last year were turned away by their banks is totally incompatible with the banking sector’s position on the state of lending in the UK.
“But what is even more concerning is that that having been rejected, 83% of businesses are not receiving information about the alternatives available to them, including the Government’s Enterprise Finance Guarantee.”
“It seems that more businesses are turning to forms of unsecured finance, such as credit cards to get them through their short term spending needs. The low interest rates on credit card balance transfers may partially explain the increasing use of this form of finance, but any contraction in Credit Card finance could see significant price hikes, adding to the already grave difficulties that many businesses are having accessing funds.”
