Banks 'Reject 42% Of Small Firm Loan Requests'

Banks rejected more than 40% of loan applications from small businesses, leading to a fall in business confidence this summer, a survey has found.

The number of credit refusals increased to 42.4% - up from 40.6% in the previous quarter - according to research by the Federation of Small Businesses (FSB).

More than 60% of small firms also said that finance is unaffordable - a figure that has increased each quarter this year.

This lack of funding and weak consumer demand hit entrepreneurs' confidence, which fell in 10 of the FSB's 12 UK regions.

Its Voice of Small Business Index recorded a significant fall in business confidence of 5.8 points in the last three months, despite more than half of the 2,600 businesses surveyed saying they wanted to expand over the next year.

John Walker, FSB national chairman, described banks' unwillingness to lend as "frustrating".

He said: "It isn't surprising that confidence fell back into negative territory as the recession entered its third quarter as growth flat-lines.

"The message is clear though - businesses want to grow and invest but they need a helping hand to do so."

Business confidence in the UK remains stronger than in the fourth quarter of last year, when the escalation of the eurozone debt crisis pushed Britain back into recession, the FSB said.

It also welcomed Business Secretary Vince Cable's proposals for a state-backed business bank to help small businesses access funding, but warned that it must be well thought through if it is going to benefit the economy in the long-term.

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