• More than a fifth of SMEs have had lending terms altered by banks in past five years
• Nearly half have the interest rate on their overdraft increased while a third have had lending facilities cut
• Just 1% of SMEs say they have ever defaulted on a loan
More than one in five (21%) – equivalent to around a million – of the UK's small and medium-sized businesses (SMEs) have seen the lending terms from their bank worsen in the past five years, according to new research by fast-growing peer-to-peer (P2P) firm, rebuildingsociety.com.
More than two fifths (9%) of those SMEs affected have had the interest rate on their overdraft facility increased while a third (7%) have had their access to additional finance restricted and a quarter (5%) have had their lending restructured.
The nationwide study by rebuildingsociety.com showed that in the last five years, more than one in six (16%) SMEs have approached their bank to arrange or increase their company's lending facilities. However more than one in ten (11%) didn't approach their bank at all because they did not believe they would succeed in getting a loan.
Currently UK SME overdraft use stands at £11.9 billion in Q3 2013, up from £11.2 billion in the previous quarter.
rebuildingsociety.com, the peer-to-business lending platform, allows entrepreneurs and businesses across the country to loan money to other SMEs. Its loans can be repaid at any time for no additional charge and cannot be recalled by rebuildingsociety.com.
The research showed that of those SMEs that did apply for a loan, nearly a third (31%) were refused. The main reason for the refusal was that the bank would not agree to the amount requested (21%). However one in ten SMEs claim that they were turned down a loan but were not give a reason – this is despite the fact that just 1% of SMEs claim to have ever defaulted on a loan. The average amount that SMEs attempted to borrow was £26,333.
Daniel Rajkumar, Managing Director of rebuildingsociety.com said: "Small businesses need all certainty in their finances as they look to grow, instead of worrying about their lending facilities being adjusted. Our research shows the disparity between those that have defaulted versus those whose facilities have been adjusted or withdrawn."
rebuildingsociety.com enables firms with at least two years of trading history to source growth capital from lenders looking for strong investment returns while providing business mentorship.
rebuildingsociety.com currently has around 350 active online lenders who have offered a total of around £1.5 million to British businesses. Lenders provide funding to SMEs on their own terms and as rebuildingsociety.com has lower overheads than banks and building societies, borrowers can refinance expensive bank products like overdrafts, while lenders make a bigger return compared to traditional savings accounts.
The research also showed that 2% (or around 100,000) of SMEs have been charged as a result of early repayment on a loan. With rebuildingosciety.com there are no early repayment charges for borrowers and no limit on the number of loans that can be facilitated through rebuildingsociety.com.
Daniel Rajkumar continues: "Businesses that borrow through rebuildingsociety.com have not only sourced growth capital at consistent interest rates but have also won a crowd of stakeholders with an interest in their success which is more powerful and valuable than institutional finance."
rebuildingsociety.com facilitates loans from £25,000 upwards and businesses must have at least two years of trading history and be profitable. For more details on its borrowing criteria, please visit https://www.rebuildingsociety.com/.