The ECB said that between March and September 2010 the proportion of SMEs reporting a worsening in access to bank loans, at 24 per cent, almost halved compared to the previous survey, when it stood at 42 per cent.

At the same time, 12 per cent of SMEs reported an improvement in access to bank loans, compared with 10 per cent in the previous round. The ECB said, “The factors which have an impact on the availability of external financing have improved, especially those concerning the economic outlook.”

The survey, which was developed in collaboration with the European Commission, also showed large firms bank loan application success remained stable at a high level and the overall financial situation showed clear signs of improvement.

Overall, euro area SMEs generally reported broadly unchanged needs for external financing between March and September 2010, with a net percentage of 3 per cent of firms seeing their needs for bank loans increase in that period, compared to 16 per cent in the previous survey, which covered the period from October 2009 to March 2010.

Article contributed by Credit Today

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In a survey of over 1,400 FSB members, only 18 per cent of businesses have applied for new credit, with 50 per cent of these successful in their application.  As the state owned banks have been given new lending targets by the Government, the survey also revealed that just over a third of businesses (36 per cent) had their application refused, with 12 per cent yet to find out the bank’s decision.
 
For businesses with existing finance, the survey also showed that 16 per cent had seen an increase in the cost over the last two months. Of these, 44 per cent saw between a two and three per cent rise, but more worryingly 12 per cent saw interest rates hiked anywhere between 10 and 14 per cent, at a time when the base interest rate is at an all time low. Only one per cent of respondents had seen the cost decrease.
 
The Chartered Management Institute’s (CMI) Economic Outlook Survey also found businesses struggling to access credit, reporting that 42 per cent of the managers surveyed at the beginning of April this year have experienced deterioration in the availability of finance for long term investment, while 40 per cent have also seen a reduction in short term investment. Eighty-one per cent surveyed by CMI agree that the government should introduce further measures to improve bank lending to businesses
 
The FSB believes that the introduction of the Small Business Credit Adjudicator announced in the budget earlier this year will help to ensure small firms are given a fair deal and a right of appeal against decisions made by big banks.
 
John Walker, National Chairman of the Federation of Small Businesses, commented, “Trust needs to be restored between banks, bank managers and business as credit conditions remain tight for small firms. We hope the next government – of whatever hue – will look at the best way to address the issues in the banking system to ensure that the UK has the necessary financing structures to support further economic recovery.
 
“Small businesses continue to bear the brunt of the financial crisis and are being penalised with extortionately high interest rates. At any time, not least when the economy is on such a fragile path out of recession, a 10 to 14 per cent increase in costs is highly unreasonable.

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SMEs were asked if they were aware of the Enterprise Finance Guarantee Scheme, Working Capital Scheme or the Capital Enterprise Fund, which have all been developed by the Government to provide much needed financial support to the country’s small businesses. A massive 56 per cent came back and said that they hadn’t heard of any of the schemes.

Kate Sharp, chief executive officer from the ABFA, believes that SMEs are at risk due to a lack of understanding about the Government’s financial offerings. She said: “Over the last few years, the Government has stepped up to support UK SME organisations through various schemes. Unfortunately, there is a severe lack of understanding among this group about what financial support is actually out there. If they don’t know about the schemes, how can the Government help them?”

The research also highlighted that obtaining credit insurance is also an issue for SMEs. Credit insurance minimises the risk of customers defaulting on payments or them going into administration. Of those interviewed 78.8 per cent said that as much as 20 per cent of their client base had been refused credit insurance over the last six months. More worryingly, 2.6 per cent said that over 81 per cent of their clients had no credit insurance whatsoever.

This means that nearly 100,000 SMEs in Britain are putting their businesses at risk by not ensuring they are fully protected. These firms are denying themselves the opportunity to manage the risk of losing money and reducing their own credit ratings, which will impact on their ability to obtain credit from suppliers.

The time it takes for invoices to be paid is also extending, as average debtor days lengthen. Over 11 per cent of respondents report that it is taking over 70 days for them to get paid compared to just 6.6 per cent last year – that is more than double the normal trading terms.

Kate Sharp continued: “With the external pressures on SMEs growing daily, it is worrying to see the reduced availability of credit insurance putting extra pressure on these companies at a time when they are already facing many other pressures. Coupled with the fact that debtor days are extending, it is more important than ever that businesses try to protect themselves against unforeseen circumstances.”

The research also suggests that unemployment may slide further with 81 per cent of SMEs questioned planning to make as much as 10 per cent of their workforce redundant over the next six months.

Over 2,000 SMEs were interviewed for the research, which was undertaken by Hilton Baird Financial Solutions, and were asked about the current state of their finances, the wider economic troubles and attitudes towards asset based finance.

Contributed by Factorscan – www.factorscan.com