According to research carried out on behalf of the British Bankers’ Association (BBA), since January 2010 almost 40 per cent of small businesses who have appealed against a bank’s decision to refuse them funds have been successful in getting them to make a U-turn.
Now, with the apparent success of the appeals process, the Forum of Private Business is urging new and existing businesses to make the most of it.
“It is important to shout from the rooftops that there is an appeals process, that it works, and that small businesses who feel aggrieved should use it,” said chief executive Phil Orford.
According to the BBA, over the last two and a half years banks have turned away 49 per cent of new small business loan and overdraft applicants and in the hospitality industry, 47 per cent of business owners have been forced to seek alternative sources of funding to help them expand after being rejected by the banks.
The lack of funding from banks has led to a rise in the number of specialist lenders to the sector and forced business owners to be more creative about sourcing funding.
Recent examples include the case of chef Isaac McHale using crowdfunding to help launch a new restaurant in Shoreditch Town Hall while fast food chain Leon started a customer bond scheme to help it raise funds for expansion.
Of greater concern is the fact that 41 per cent of small businesses who were surveyed by the BBA said they had injected personal funds into their businesses in the last year with the practice being more common among firms with fewer than 10 employees and younger businesses.
Restaurateur Gideon Joffe, who later this month will open his third restaurant Chooks, in north London, told BigHospitality he would not have been able to open his first restaurant – MonkeyNuts in Crouch End - without financial help from his parents, Giraffe founders Russel and Juliette Joffe.
“It’s hard to have a restaurant business without any help today,” he said. “I am lucky to have had help from my parents, but if you don’t have that option I don’t know what you do, because the banks aren’t lending.”
Joffe said a lack of financial clout meant new restaurateurs were also less likely to have the pick of well-located restaurant sites.
He said: “It’s difficult to find good sites as landlords don’t want to give independent restaurateurs the prime sites. They only want established names in there as they know they have the finances and the experience to succeed.”
How to appeal
The lending appeals system was introduced following a report by the Business Finance Taskforce in 2010 which acknowledged the credit shortages facing small to medium-sized enterprises (SMEs).
Under the rules of the scheme, a business can request that their loan refusal is reviewed by a second person at their bank who was not previously involved in the process.
Overseen by external independent reviewer, professor Russel Griggs, the rules state that a decision has to be made by the bank within 30 days and if still declined, the bank must provide information on alternative sources of funding.