Do Banks Want to Lend to Companies Like Mine?
It’s no secret that banks haven’t had the best reputation during the past few years. Many have been criticised for their reluctance to invest in smaller, newer businesses due to the higher perceived risk. However, as the economy is continuing to recover, are the banks now in a better position to lend? The big question many small businesses are asking is ‘do banks want to lend money to a company like mine?’
SMEs today may find that proposals such as the Bank of England Funding for Lending scheme could help them to secure necessary business loans needed for essential growth and development, although it is important to remember that even schemes such as this cannot guarantee success. In fact, despite the system being implemented in direct response to criticism the banks faced for high refusal rates during the recession and throughout the recovery period, the Bank of England continues to note that repayments by borrowers is still exceeding the value of new loans. There’s still some work to be done.
Why, at a time when the economy is looking good, are banks still holding back? There are many different reasons why SMEs are refused business loans by banks, including the following:
- Inability to demonstrate solid records
Banks don’t just want to see evidence of good credit – they also want to know that they’re investing in something worthwhile. ‘Banks appreciate everything to be highly detailed and spelled-out, so don’t be afraid to include something like a bio of the company’s partners, advantages your company has over others, etc’, says Charley Moore of RocketLawyer.
- Specifics individual to the bank
Banks aren’t under any obligation to lend to SMEs. Many tend to favour larger corporations due to the wider range of financial products they’re able to offer, including event-driven financing. Some are also restricted by their own internal policies. When the Cooperative Bank was still lending, for example, they reportedly turned down £1b since 1992 due to their ethical policy.
So if banks don’t want to lend to companies like yours, who does? The good news is that there are more investors than you think that would be interested in ‘taking a chance’. If your business has been refused a business loan, that doesn’t mean that you won’t be able to grow or develop your company further. The Nesta innovation charity claims that the alternative finance industry in the UK grew from just £267 million to £1.74 billion between 2012 and 2014, while the Asset-Based Finance Association reports that 38 percent more businesses are accessing asset-based finance than during the recession.
At compareyourbuinesscosts, we’ve made it easy for businesses like yours to get in touch with interested investors. Let us know what you’re looking for via our online price comparison tool and we’ll scour the wide range of alternative finance options available to find you the very best deal.