Why banks won't lend to small business

Lending moneyIt won't surprise anyone who's tried to squeeze a bit of credit from a bank recently that Project Merlin, which set targets for banks to lend to small businesses, has failed to hits its target by around £1 billion, according to this week's figures from the Federation of Small Businesses.

While banks and politicians will crow about the fact that all lending in the last nine months has surpassed the £142.5bn target with £157.7bn, down where the hard-pressed small business lives, it's a different story.
And do you know why? Because banks will trawl through years of records to dig up reasons why they shouldn't lend to you. This isn't a baseless claim and I should know.

Never overdrawn
I was after a £3,000 overdraft on my small business account, which has never been overdrawn, never had credit and I had banked with Barclays since its inception four years ago. Its banking history is clean as a whistle.

With the chance of month-long cash-flow hiccup at the end of the tax year, it seemed a good idea to have something in place if I needed it, so I applied through the usual channels for the overdraft.

A couple of days later I received a phone call from Barclays Business advising the application had been unsuccessful because there was a debt marker on the now-closed account of a business I had been associated with, from back in 2007.

That marker flagged up an outstanding CCJ against the company. I was advised to investigate it, see if I could clear the debt and then appeal against the decline.

I did investigate and found the County Court Judgement against the business had resulted from a late filing penalty of £200 way back in 2005. This was clearly something I had no record of as the company had bubbled along for another five years without a care in the world, before I eventually shut up shop in 2010, with that errant CCJ never suggesting its existence.

I found that while HMRC had long-since written off the £200, there were still court fees of £20 outstanding, which I paid instantly.

This was a shock on two counts. Firstly, because I'd never had a CCJ against myself or my business, and secondly, because Barclays had bothered to go back all that way to a no-longer existent business and a long-closed account just to find a reason to deny me a crumby £3,000 overdraft.

So despite what the banks tell you about their willingness to lend and the success of Project Merlin, the truth of the credit squeeze on the ground is something different.

Meanwhile, after a dozen calls to Barclays Business, a lost letter detailing the satisfied debt and a delay of two months, I'm waiting for a reply on my new overdraft application, though I can probably guess the result.

I'd be interested to hear any tales of a similar nature that you might have because I know one thing's for certain.

I am not alone.
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