Businesses ‘were struggling before credit crunch’

Small businesses were already struggling to access finance even before the credit crunch hit, a new report has found.

The survey, by the Centre for Business Research at Cambridge University, found that between 2004 and 2007, the number of businesses seeking finance who were ‘wholly or partially rejected’ dropped from almost 30% to just over a quarter.

Although the results of the report indicate small businesses were hit by the effects of the credit crunch before other sectors, it can also be explained by the soaring amount of funding businesses requested, the report suggested.

While in 2004, businesses sought on average £82,000; 2007 saw businesses requesting more than £450,000.
Businesses seeking finance from factoring were the most successful, with more than 90% of requests being granted, while those going down the route of loans and mortgages had an 85% success rate.

Nick Palin, director of finance and administration at business lobby organisation the Forum of Private Business (FPB), said the credit crunch has made accessing finance more difficult.

“It is important that the government streamlines the application process and that small firms consider switching banks, or seek out the alternative funding streams,” he said.

“Businesses are also not cutting costs where they could – for example, £200m in small business rate relief goes unclaimed each year.”

© Crimson Business Ltd. 2008