Business Finance News From United Kapital

SME's Wary Of Approaching The Banks For Finance

Tuesday 16th of August 2011

According to the latest independent survey many SMEs are not applying for loans from high street lenders because they think that it is too much hassle and their application will be rejected anyway. This is a worrying figure in regards to the UK's business growth.

In fact last year 15% of SMEs decided not to apply for a loan either because they had been discouraged by their bank to do so or they thought that their application would be turned down. Furthermore, 28% of SMEs have reported that their loan application was turned down by the bank. According to the study by the British Bankers Association, even those businesses that decided to reapply for the loan asking for less cash were rejected for a second time.

SMEs are saying that the reasons for not applying for a loan are not only the worry of rejection, but also the cost and time put into applying for the loan itself, which can be a lengthy process. As well as this, SMEs have reported being worried about borrowing in the current climate where budgets and money is tight for everyone, and a distinct lack of trust in the banking system.

Banks are saying in response that they are willing to lend and did so to around 60% of businesses last year, with many being accepted on their first application. However, with repayment charges higher than ever before as well as late fees, some businesses are looking to alternative lending methods rather than traditional business loans. One example is a merchant cash advance which is a popular form of flexible business finance. It works by essentially obtaining a cash advance of future credit and debit card sales from the business. This is then repaid by paying back a fixed and pre-agreed percentage of all future credit and debit card transactions until the full amount is settled. The amount you borrow could be anything from £3,000 to £150,000 which could fund vital development plans for an up and coming SME.

Other studies have recently highlighted the importance of SMEs in the UK, hailing them as the future of business in Great Britain. With alternative loans such as the merchant cash advance available, it gives more SMEs the chance to expand and improve their business activities without the worry of rejection (there are high approval rates) and also an easier and more flexible repayment method that works in the best interests of the business itself.