Research published today by CreditPal shows that 43% of the UK’s Small and Medium Sized Enterprises (SMEs) applying for credit in the last two years were required to supply monthly management accounts by their lender.
The research reveals that even for the smallest businesses with a turnover under £1million, almost a third (29%) were asked for monthly management accounts to support their application for finance.
The proportion of companies being asked for this information varies radically between sectors, with 65% of manufacturing businesses being asked for monthly accounts, yet only 25% of retail enterprises were asked to supply them in support of their application. Despite widely reported difficulties in the construction industry, less than half of all credit requests from that sector required this supporting data. The findings appear to support the belief that companies are being scrutinised based on their sector classification, rather than being assessed on their individual performance.
Many SMEs are ill-equipped to provide the financial information now required by banks and building societies before they will consider extending finance. More than one in ten (15%) SMEs who were asked for monthly management accounts did not have them already available. Having these financial documents specially prepared meant these businesses incurred estimated cumulative charges of £50 million.
Chris Poll, CEO of CreditPal, commented: “The availability of credit is vital to help SMEs deliver growth for the UK economy. The concern many small enterprises have is that credit decisions are based primarily on their business sector, rather than by assessing their individual case. However, if lenders have access to the most up to date financial information they are able to assess and price credit more effectively.
“Our research indicates if businesses have validated monthly management accounts readily available they will receive decisions on their applications more quickly. Small business owners may think that monthly accounts are unnecessary, but the research indicates that lenders will demand greater transparency for even low levels of borrowing. While time spent preparing the accounts may be seen as a distraction from day to day operations, the benefit they bring in terms of management information, as well as helping facilitate access to credit could be invaluable. This is why we created CreditPal and made it free to UK business.”
