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'Personal issues' behind banks' rejection of SMEs

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Small companies are often being rejected by banks based on “personal issues” with founders' credit ratings rather than problems with their business plans.

 

An official report into appeals by businesses against banks’ lending decisions found start-ups and very small companies are at times being “judged harshly” based on personal credit scores, leading to them being turned away “automatically ... before a proper exchange can be had”. The study also revealed that almost 40pc of decisions to reject applications for bank loans are overturned when companies use an independently monitored appeals process which was described as “the best kept secret in banking”.

 

The Federation of Small Businesses said the high “overturn” rate showed “banks have some way to go to improve their internal systems”. The appeals process was established in 2011 as part of the Business Finance Taskforce, an organisation set up in 2010 by the British Bankers’ Association (BBA) to look at ways to help small businesses following the financial crisis. Russel Griggs, the author of the report, said banks are now lending in a “normal” way and the lack of bank lending is down to a weak economy and a lack of demand from businesses.

 

Link: http://www.telegraph.co.uk/finance/yourbusiness/10117014/Personal-issues-behind-banks-rejection-of-SMEs.html


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