Banks reject majority of small business funding applications

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Seventy percent of small businesses fail to secure external finance at the first attempt, a study has revealed, with weak management teams often to blame.

Two in five companies said that they had been turned down for funding more than three times and one in ten had made five or more unsuccessful attempts, according to a report from Smith & Williamson, the accountants.

Almost half of the respondents to its poll of UK based SMEs said that weakness in their senior management team was the reason given for the refusal.

More than a quarter were told that their business model was not strong enough, while one in five admitted that they did not having a strong enough grip on their company’s finances to justify debt or equity investment.

Fast-growing companies, more likely to have a concise business plan and a precise understanding of how much money they need, were more successful than other small businesses but still found fundraising difficult, Smith & Williamson said.

The banking industry says that about four in five applications for lending from small companies are successful, but business advisers argue that these figures are highly misleading since they tend to capture only those that have been told already that their application is likely to pass. Those likely to be turned away tend to be discouraged from making a formal application.

Paul Adrian, founder of Mojo Skin & Haircare, which makes men’s grooming products, said that companies should look beyond the usual suspects. “Raising finance for a growing business can be really tough,” he said. When he needed money for an unexpected, large order Mr Adrian, 54, turned to Funding Circle, an online lending platform, and managed to secure £50,000 within 24 hours. “The cons were they needed a personal guarantee and there was a high interest rate, but the pros were the time frame of approval from application to funds in the bank.”

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