Lack of financing from banks means that one in five business in the UK are being forced to resort to credit cards in order to keep their business afloat according to a study conducted by the Institute of Directors (IoD).
A survey of over 1,000 company directors revealed that 60% of businesses are being turned down for credit by banks. This is despite the repeated claims by UK lenders that the majority of demand for credit is being met.
According to the IoD, the lack of available credit from UK lenders has led to around 20% of businesses financing their operations with credit cards.
In the survey of 1,045 directors, 25% said that they had tried to access finance over the last year from the institutions that they banked with. Of these 25% a further 57% of directors said that their application for finance had been rejected by their bank.
Miles Templeman, the IoD's general director, 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."
The IoD also claim that the Enterprise Finance Guarantee promised by the Government is not being made available to businesses. Reports indicate that the IoD’s claims have validity. A recent public accounts committee report revealed that 83% of firms who had been declined bank finance were not even offered information on the EFG scheme.
IoD director general Miles Templeman 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% 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.
With news that credit card interest rates are at a 12 year high, thee is a genuine fear that businesses using credit cards for short term fixes could be in serious trouble if credit card interest rates continue to rise.
The Bank of England governer, Mervyn King has already expressed his concerns that the UK’s economic recovery could be seriously hindered if businesses are refused the funds required to stay afloat.
