New Forum of Private Business research shows that many cash-starved small businesses are still looking to the banks to provide growth capital and restore confidence.
But for 43% the terms and conditions were considered too harsh, particularly surrounding additional security requirements, and 37% said they were simply delaying investment until the economy improved.
In addition, 31% cite a lack of rewards for risk taking as the reason for reluctance to approach banks.
Some 23% blame small business owners’ inability to negotiate with banks, 13% a lack of affordable financial advice and 12% an awareness that there are alternative funders competing with banks.
Unaffordable lending costs were mentioned by 8% of respondents.
Alternative finance
The FPB research also revealed 24% of panellists consider alternative finance for SMEs to be a temporary phenomenon compared to 27% who think it is not.
Reasons given were that they did not borrow, were happy with the service they received from the banks or did not know enough about alternative providers - or feel the need to find out about them.
Criticisms of alternative funders include a lack of credibility, and also trust in advice provided, lenders, poor face-to-face contact, greater understanding of how traditional banks work, the tendency of banks to commoditise good services, a preference not to invest at all rather than take a risk on unfamiliar credit streams and hidden costs and stability of alternative providers.
Confidence in alternatives was influenced by factors including distrust and annoyance with the banks and bank charges, greater flexibility displayed by some of the potential providers and an understanding of alternatives’ operations gained through necessity.
Financial advice
Small businesses were asked where they would turn to for advice on alternative finance.
In all 69% said their accountant, 37% their bank manager, 24% a consultant or other financial expert and 20% other business owners.
A total of 10% said they would not seek advice and just 8% would turn to a trade association.
Where gaps in the provision of financial advice exist 43% believe the Government should step in while 39% disagree.
In general, those who felt that the Government should provide support for business owners wanted this information in the form of self-help guides.
One or two felt that certain financial advice – on high street lending and improving cash flow – should be available through the banks, arguing that this may make them more likely to lend to businesses clearly following this advice.
It was also hoped that it might help the bank’s local team to understand more about how the business works financially.
Alex Jackman, senior policy adviser at the FPB, said: “While some firms are seeing improvements to cash flow, working capital and growth capital many more are seeing these deteriorate and are looking to the banks to provide the finance for growth in order to boost business confidence and drive economic recovery.
“Small business owners are likely to feel vindicated that the banks are being taken to task given the experiences they have had in recent years – but clearly mainstream lenders remain centrally important in their eyes. Entrepreneurs believe banks can do a lot better and are calling for improved levels of service, including more branches, faster and more transparent decision making and greater choice.”
Some 17% of owner-managers also called for more distinctive lenders operating in the small business finance market and 14% a greater number of providers offering broadly the same service.
Jackman added: “There is caution in some quarters over alternative forms of funding but the research suggests that if these improvements are is not delivered many entrepreneurs alienated by mainstream lenders are more than willing to vote with their feet and explore newer, more innovative financial services less dependent on automated risk criteria.
“There is an important role to be played by accountants and other financial advisers – including bank representatives – in guiding them in the direction of funding solutions that work for their businesses.”
