'Out of credit'

Loans drought forces quarter of small firm owners to raid own savings

• One in four small businesses have had to use their own money in last year
• Poll found only 45 per cent of small firms have secured loans they needed
• Experts warned banks are 'stifling the next generation of business owners'







Daily Mail,

6 March, 2013

One in four small businesses have been forced to use their own money over the last year because they could not get a penny from the big banks, a report reveals today.

The drought comes despite the Bank of England handing out nearly £14billion of cheap money since the summer to encourage lending to cash-strapped small firms.

Last night, experts warned banks are ‘stifling the next generation of business owners’ who could be hiring staff and creating corporate giants of the future. 

The report, which represents the biggest investigation into the plight of small firms, reveals 40 per cent said they had injected ‘personal funds’ into their business.

This includes anything from raiding a savings account, taking out money on their credit card or extending a personal overdraft to selling tax-free Isas in order to fund their firm.

Typically, the amount is ‘relatively small’, according to the report, with nearly two-thirds putting in £5,000 or less. But 24 per cent said they felt they ‘had no choice about this, that they had to do it’.

The banks insist they are lending to businesses, claiming they typically accept the ‘vast majority’ of applications.

However today’s report, commissioned by the banks but conducted by the independent researchers BDRC Continental, casts doubt on this claim.

Between October and December, its poll of around 5,000 small firms found only 61 per cent of businesses applying for a new or renewed overdraft were ‘offered what they wanted and took it’.

For loans, the figure is even lower, with just 45 per cent getting what they had asked for.

In both cases, a further 12 per cent of firms said they accepted the offer after having to resolve ‘issues’, such as the fee or the amount being offered.

Robert Downes, from the Forum of Private Business, has called on the Government to look at ‘radical’ action to get the banks’ lending, or risk Britain ‘never getting out of the hole we are in’.

He said: ‘Firms seeking credit for the first time – usually the ones who need it most – are the ones more often than not being refused access to credit from lenders. And it’s got markedly worse in a short period.

‘Simply put, the banks’ risk-averse nature is stifling the next generation of business owners – and the Government is idly watching from the sidelines.’

John Walker, of the Federation of Small Businesses, said: ‘Our own figures showed that in 2011,  33 per cent of members used their savings or inheritance to finance their business, with 20 per cent using a personal credit card. This is often a more expensive way of financing a business than getting a business bank loan or overdraft.’

Lee Hopley, chief economist at the EEF – the manufacturers’ organisation – believes the banking system for small businesses is ‘simply not competitive enough’. She said: ‘More data on small business lending brings more of the same story of discouraged demand hampering firms’ ability to grow.’

But a spokesman from the British Bankers’ Association said: ‘The UK’s banks are committed to helping small and medium-sized businesses.’

He added: ‘The figures show that the vast majority of businesses who ask for bank finance are successful.’

Biggest real wages fall in UK: TUC

Workers in the UK have seen the biggest fall in real wages than anywhere in the world's top 10 developed economies, according to a new study.

London Evening Standard

7 March, 2013

The TUC said that between 2007 and 2011 real wages fell by 4.5% in the UK, higher than in countries such as Italy and Japan, while in Australia and Canada there were increases of 6.9% and 5.4% respectively.

Most of the decline was in 2011 - the coalition Government's first full year in office, the research found.

The TUC said the Government's austerity programme had made the squeeze on living standards even tighter by cutting tax credits and welfare support for low and middle-income families.

TUC general secretary Frances O'Grady said: "While most countries have suffered periods of negative wage growth, no-one has witnessed such a marked decline as the UK.

"This Government's blind obedience to self-defeating austerity has ensured that we are leading the way when it comes to the squeeze on living standards.

"Businesses desperately need people to spend money but employees are cutting back as their wages are squeezed and the public sector, far from making up the gap, is being slashed too.

"Unless we get stronger economic growth with rising real wages, consumer spending will remain weak and the economy will continue to flat-line."

Shadow Treasury Minister Cathy Jamieson, said: "These shocking figures show that a flatlining economy under David Cameron and George Osborne has led to a sharp fall in living standards since 2010. We are losing in the global race with the biggest decline in real wages of any of the world's top ten economies.

"Urgent action is needed in this month's Budget to kick-start our stagnant economy and help people on middle and low incomes struggling with the rising cost of living. The top rate tax cut for millionaires should be cancelled and a new lower 10p starting rate of tax introduced to help millions on middle and modest incomes, and to boost growth we need to bring forward infrastructure investment, build thousands of affordable homes and give tax breaks to small firms taking on extra workers."