The findings suggest that a steady fall in net lending to smaller companies since 2008-9 is not just the result of weaker demand for loans or the deteriorating creditworthiness of potential borrowers, reports The Financial Times.
The results of the study, commissioned by the Department for Business, Innovation and Skills, will intensify pressure on banks to lend more.
Data analysis by the National Institute of Economic and Social Research (Niesr) found that a higher proportion of loan applications from smaller businesses were being rejected since the crisis – even after controlling for their riskiness.
“The research is indicative of an economically damaging shortage of finance for small and medium-sized enterprises, reflecting banks’ attitudes to risk and pressures to de-lever, albeit also indicative of banks’ market power in the SME sector,” the paper concludes.
“Although demand is also probably subdued, there is a high level of discouragement from application for lending as well as high rejection rates and margins on credit.”
Net lending to SMEs is falling at an annual rate of about 4 per cent several years after the financial crisis, according to Bank of England data.
The British Chambers of Commerce says SMEs have been “left out in the cold by lenders”, but the banks have maintained there is less demand from creditworthy SMEs for loans.
Vince Cable, the business secretary, has been pushing banks to improve the flow of credit to smaller companies and has also called on the Bank of England to alter its Funding for Lending Scheme to try to achieve this aim. The FLS, which offers banks cheap funding, has been running since last summer, but has not yet stemmed the decline in net lending to households and businesses.
The Niesr analysed data from the UK Survey of SME Finances and its successor, the quarterly SME Finance Monitor, based on about 5,000 interviews with companies.
It found higher rejection rates for term loans and overdrafts, and noted that applications for renewals seemed to have been more affected by “credit rationing” than applications for new finance. However, it found that collateral requirements and arrangement fees had not increased.
Paul Stephenson, a spokesman at the British Bankers’ Association, said: “The banks are working very hard to make sure businesses get the loans and financing they need. There are competing demands on banks. We all want banks to de-risk and make sensible loans . . . but we also want them to get the money out the door.”