The Cost of Borrowing

According to figures released earlier this month by the Financial Ombudsman Service, the number of complaints about small business bank loans have risen by 119% over the past year to 31st March. There were 496 complaints to the ombudsman by small business owners this year, compared to just 226 in the previous twelve months.

Levels of frustration with banks have clearly increased since the financial crisis began in 2008. In fact, people seem to currently be unhappy with all types of financial institutions. The overall number of small business complaints against financial institutions for the year was 4,656 – a rise of 43% on the previous year. In comparison, complaints by individual consumers showed a far lower increase of 27% (158,356).

The figures may not even depict the whole story of business dissatisfaction with UK financial institutions. Only companies with a turnover of £1.8m or less and fewer than ten employees are allowed to complain to the ombudsman. Either way, banks are clearly angering the general public with their refusal to lend to perfectly sound businesses.

Despite this, the main high street banks all announced this month that they have seen an increase in the amount of money that they lent to small business customers. They also claimed that the demand for loans has fallen. Statistics from the Bank of England showed that net business lending fell by £3.2bn in the first quarter.

The British Chambers of Commerce and the British Banker’s Association have both made statements in recent weeks suggesting the lending situation is far more complicated than what has been portrayed in the media. They insist the money is available and figures do indeed show that UK banks are lending a net $500m every month to small business. Analysts suggest that although good businesses are being denied credit, banks have at least managed to kerb the reckless lending that was taking place during 2007.

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