A report from the European Commission’s statistical office, Eurostat, shows how the economic crisis has hurt business, and small and medium sized enterprises (SMEs) in particular. The report confirms what a lot of smaller firms have been saying: that the proportion of unsuccessful loan applications has risen over the past few years.
The Eurostat report says that the economic crisis has made it more difficult for SMEs to access banking credit, with the proportion of unsuccessful loan applications rising between 2007 and 2010 in 19 of the 20 European Union member states for which data are available.
In 2010, the UK ranked quite high in the league table: 21 per cent of all applications for business loans here were unsuccessful, the same as Lithuania. Only Bulgaria (36 per cent), Ireland (27 per cent), Latvia (26 per cent) and the Netherlands (23 per cent) were worse.
Eurostat surveyed 25,000 businesses across the EU, gathering information on fast-growing enterprises, the future financing needs of SMEs and perceived factors limiting business growth in the future.
“We genuinely hate to say ‘we told you so’," said Colin Borland, head of external affairs in Scotland for the Federation of Small Businesses, "but these worrying statistics underline the case the FSB has been making since the credit crunch hit.
“It wouldn’t be fair to say that no bank is lending to any small business. But what is clear is that fewer businesses are going to their banks – and, when they do, it’s less likely they’ll get the finance they need. It’s also more likely that any finance will be less flexible, more expensive and come with more strings.”
Most of the Scottish banks have so far failed to respond to a request for their view of the report's findings. But a Lloyds Banking Group spokesman said that it was “committed to supporting the Scottish economy and we approve eight out of ten requests for loans and overdrafts.
“Last year we provided £500 million of lending provided to Scottish small and medium sized businesses and these lending taps remain open while the absolute cost of borrowing is around half that in 2007. We are giving real support to businesses across Scotland allowing them to create new jobs and keep the economy moving.”
The report came on the day that the UK chancellor, George Osborne, told the Conservative Party conference in Manchester that the Treasury would look at ways of funnelling money directly to British companies. The idea, which has still to be spelt out in detail, will involve the government or the Bank of England issuing new kind of bond for business or underwriting loans to small businesses who are struggling to get credit now.
“Everyone knows Britain's small firms are struggling to get credit,” the chancellor said, “and banks are weak. So as part of my determination to get the economy moving I have set the Treasury to work on ways to inject money directly into parts of the economy that need it, such as small businesses. It's known as credit easing.
“It's another form of monetary activism. It's similar to the National Loan Guarantee Scheme we talked about in opposition. It could help prevent another credit crunch, provide a real boost to British business, and over time help solve that age old problem in Britain: not enough long-term investment in small business and enterprise.”
The FSB welcomed the initiative, with Colin Borland wishing it every success and adding that he looked forward to the detail. “We also welcome many of the Independent Commission on Banking recommendations [published last month], recognising we can never again see a cataclysmic banking collapse that drags the real economy into the mire. However, I am certainly unconvinced that we have put together a comprehensive plan to tackle the whole problem – especially in Scotland where two banks are dangerously close to running a duopoly.”
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