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According to a recent survey, tough lending policies have been replaced by fear of an uncertain economy as the reason for reduced borrowing by businesses. The weak economy has become the main reason for not applying for business credit. The same survey reveals that banks are still turning down credit applications from businesses.

The Business Monitor, a quarterly survey which is funded by the banks revealed that loan applications were eight times more likely to be refused now, than they were before the recession. Applications for overdrafts were twice as likely to be rejected now as in 2007. The survey revealed that 95 percent of businesses refused a loan, weren’t offered a suitable alternative.

New businesses are more likely to experience difficulty when applying for credit than an established company, with 96 percent of businesses applying to renew credit being approved. The numbers of businesses planning to apply for credit in the weeks up to Christmas have fallen, with only 13 percent indicating that they will apply, in comparison with 20 percent which said they would apply for credit earlier in the year.

Over 10 percent of small businesses which had overdrafts or loans had received notification from the banks that the credit facility would be withdrawn. A third of businesses don’t intend to borrow from a bank, relying instead on cash flow. Small businesses may find themselves unable to meet criteria set out for borrowing, particularly if the business is new, creating a barrier to growth.

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