Banks judge funding for small businesses "too harshly"

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Securing funding for a new business is probably one of the biggest conundrums a start-up can face.

And as many get turned down and their dreams of beginning a new venture are shattered, some may take comfort in the knowledge that an appeals process could give them a second shot of getting the financial backing they need.

However, this may not be the case as an official report has shown that too many small companies are being turned away time and time again for personal reasons rather than due to the fact that their business proposals are flawed.

What’s more, the appeals process seems to safeguard the interests of banking institutions rather than small businesses, the Telegraph reports.

Professor Russel Griggs, the former head of the Confederation for British Industry and author of the report, believes businesspeople are being “judged too harshly”.

“In many cases, and especially for start-ups, it is the individual who is judged first and not the business,” Professor Griggs stated.

For example, he cites the example of an entrepreneur setting up a hospitality company. The founder requested a £20,000 overdraft but was declined due to a low credit score.

The reason for this? It transpired that some months before, the customer had purchased a car which had been funded through a finance broker who had conducted numerous searches which negatively affected the client’s credit rating.

As a result of the flawed funding process, Professor Griggs plans to meet with the Financial Conduct Authority to call for a “different set of guidance” that can more accurately separate small businesses from independent consumers.

Greg Clark, financial secretary to the Treasury agrees with Professor Griggs sentiments. He said the appeals process must not be the best kept secret in banking and applicants should be confident that if they are turned down for a loan, they can get a second opinion, and the chance to borrow if the business case is sound.

 

Posted by the Secret Businessman