Banks 'failing to back businesses with finance'

The Institute of Directors will today rubbish banks' claims that they are providing finance to business by releasing the results of a survey showing that the majority of its members who sought financing from their banks during the last year have been turned down.

The release comes on the same day Barclays is expected to report nearly £11bn in full-year profits and reignite the debate over bankers' bonuses.

In its survey of 1,045 directors, the IoD found that a quarter said that they had tried to access backing from the institutions that they banked with in 2009/10. Of this quarter, 57 per cent of directors said that their application for finance had been rejected by their bank.

The IoD said that evidence contradicted claims being made by the banks that the majority of lending demand is being met. The same survey also found that one in five businesses that wanted additional capital in 2009/10, didn't investigate bank loans or overdrafts because they believed they would be declined, saddled with disproportionately high costs or required to comply with requests for additional security.

The survey found that bank loans as a source of financing has declined sharply. IoD data from 2001 showed that 45 per cent of its members were financing their businesses through bank loans and 40 per cent through overdrafts. Today, only 28 per cent are doing so via bank loans, 36 per cent through overdrafts. A further 20 per cent are financing their business to some degree through credit cards.

The survey comes after a critical report from the House of Commons Public Accounts Committee which found "widespread dismay" at the poor performance of state-backed Royal Bank of Scotland and Lloyds Banking Group in meeting pledges to lend to struggling businesses.

The IoD's 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."

Vince Cable, the Liberal Democrat's Treasury spokesman, said of the results: "There is a huge gap between what the banks tell us and the experience of companies on the ground."

Angela Knight, the chief executive of the British Bankers' Association, said: "Banks are continuing to lend to businesses. New lending by the major high street banks is currently running at well over £500m each month, and the total lending by banks to small businesses is currently £55.6bn. In reality, these banks are not only continuing to lend to their existing customers, but they have also taken up much of the vacuum left by overseas and non-bank lenders."