By Marcus Leach

Three quarters (75%) of small businesses (SMEs) think that bank lending margins on loans are too high, up from 73% last year, reveals research from Syscap.

Only 8% of SMEs surveyed say that their ability to access bank loans has improved over the last year and a third (33%) say that it continues to get worse. 12% of businesses say that their ability to access bank loans has worsened further in the last three months alone.

“It is disappointing to see that such a significant percentage of businesses feel that obtaining a business loan at an affordable rate has got tougher over the last year,” Philip White, Chief Executive of Syscap commented.

“It has been four years since the collapse of Northern Rock and the start of the credit crunch, but business lending conditions are still a long way from recovery.”

Earlier this year, the Chancellor initiated Project Merlin - an agreement between the government and the UK's four biggest banks to lend more money in 2011, especially to small businesses.

According to Bank of England figures published in July, lending to small and medium sized businesses fell more than £2bn short of targets set as part of the Project Merlin deal.

“Despite Project Merlin, business borrowing is still too low. More still needs to be done to lower the cost of borrowing so that businesses can make the investments they need to grow and create new jobs," White added.

“Proposals in the final report of the Independent Commission on Banking (ICB) for banks to hold capital of at least 10% in their retail and SME lending operations, mean lending is unlikely to recover anytime soon. Higher capital reserves mean less lending.”

The research also reveals that 89% of businesses consider the arrangement fees on loans to be too high, up 9% from 82% last year.

“Steep loan arrangement fees make it uneconomical for businesses to borrow and in combination with high lending margins, the result is that SMEs are increasingly looking to non-traditional finance providers like leasing,” continued White.

42% of businesses report increased need for finance in last quarter

Syscap’s research also shows an increased demand for finance from SMEs, with 42% of businesses reporting that their requirement for finance has increased over the last three months, up from 27% during the same period last year.

“The banks’ explanation for their low lending figures is that businesses are not sufficiently confident in their growth plans to need finance. These results suggest that the reality of the situation is that businesses do want finance, but they are put off loans by high margins and excessive arrangement fees,” he said.

Other findings from the research show that:

- 34% of businesses are delaying investment in their business due to difficulties in obtaining finance.
- 47% of businesses say that it is ‘very important’ for them to have access to finance, and a further 42% say that it is ‘important’ for them to have access to finance.

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