Banks 'reject two thirds of business loan bids'

Banks have turned down almost two out of three businesses which apply for loans, often forcing firms to fund themselves with credit cards, a study claimed today.

Research by the Institute of Directors showed that one in four companies had tried to access finance from their banks, but almost 60 per cent of these had their application rejected.

The survey of more than 1,000 company directors contradicted claims that banks were meeting lending demand, the report said. Of equal concern was that promised Government support through the Enterprise Finance Guarantee was not being given.

Miles Templeman, IoD director-general, said: "The fact that over half of all businesses seeking finance last year were turned away by their banks is totally incompatible with the banking sector's position on the state of lending in the UK.

"What is even more concerning is that having been rejected, 83 per cent of businesses are not receiving information about the alternatives available to them, including the Government's Enterprise Finance Guarantee.

"It seems that more businesses are turning to forms of unsecured finance such as credit cards to get them through their short term spending needs.

"The low interest rates on credit card balance transfers may partially explain the increasing use of this form of finance, but any contraction in credit card finance could see significant price hikes, adding to the already grave difficulties that many businesses are having accessing funds."

Philip Hammond, the shadow chief secretary to the Treasury, said: "This research makes a mockery of Gordon Brown's claim to be giving real help now to businesses and to have extracted legally binding guarantees from the banks to lend more in exchange for taxpayer support.

"Businesses are being deprived of the credit they need to invest and create the new jobs we need for a sustainable recovery."