Jun 10, 2013 Philip Burgess
Ever since the global recession took hold a few years ago, British banks have opted out of offering business loans to companies across the country. Small firm owners have likely had the toughest time - not only have enterprises that haven't been established for a long time faced trouble, but they likely faced troubling financial times personally as well.
Traditional lending institutions stopped lending to anything that wasn't a sure thing. And although many industry veterans have declared the financial plight all but over, that trend really hasn't changed much. The economy is still struggling, but it is picking up, albeit slowly.
Despite the growing optimism in the United Kingdom's fiscal landscape, banks have yet to loosen their purse strings when small business owners apply for loans. This is true for many industries, though some in the nation believe that slowly but surely change is coming.
Financial leaders agree that lending is still rare
However, the majority of financiers in the U.K. still agree that the fiscal landscape remains unsavory for many business owners, The Wall Street Journal reported. Business Secretary Vince Cable recently released a statement acknowledging that the Royal Bank of Scotland Group (RBS) and Lloyds Banking Group still rarely offer loans to small business owners, the source said.
"It's not that they're refusing credit [to firms], it's just that the criteria are so onerous, and so extremely risk averse, that it's very, very difficult for many good companies to expand in the way we want to see occur," Cable explained, as quoted by the news source.
Plus, he noted that there is simply no quick fix, and British lawmakers are increasingly considering becoming involved in the lending landscape, so this might be the situation for some time, The Wall Street Journal reported. In fact, many country administrators have pointed out this situation, saying that it's causing a major fault line in the economy as a whole.
Changes in a specific industry
According to City A.M., companies in the U.K.'s leisure sector will soon have access to increased funding. This is because both NatWest and RBS recently created the Leisure Fund, which was formed when many industry heads complained that the majority of companies in their sphere weren't able to tap into any available money.
"Competition in this sector is fierce, so those putting off short term investment can quickly find they need to make larger investments, or face being left behind," Head of Leisure for Commercial Banking at NatWest and RBS Andrew Taylor told the news source, adding that the industry is a major source of jobs in the United Kingdom.
City A.M. said that £150 million was set aside for those who need loans in this sector.
If small business owners aren't involved in the leisure industry and still need funding to sustain their operations, they do have a number of options still available to them. Alternative finance organizations can be of remarkable help during these times.
This is because alternative lenders don't have to abide by such strict approval standards when considering applications. They often have the liberty to make their own rules, which can be more relaxed.
Part of the reason this occurs is because many British lenders are beginning to judge applicants by taking nontraditional credit scores into account, rather than by using the older methods. For instance, the Payment Reporting Builds Credit ranking system is becoming more popular. This score takes into account a business owner's ability to pay off utilities accounts in the past, among other factors, and can often provide a more comprehensive look at the individual's financial profile.