"Financing projects from £50,000 to £100 million"

No to new ideas: Innovative firms denied credit

No to new ideas: Innovative firms denied credit

Small firms that devised new ideas were less likely to secure finance to support their endeavours over the last few years, a new survey suggests.

The survey by the Big Innovation Centre, which polled around 12,000 firms, found a “systematic failure” in the willingness of lenders to support innovation.

This had severely restricted the economy, it said, because companies with the most potential to grow at the fastest pace had been stifled by the lack of access to credit.

Around half of businesses reported difficulties in obtaining commercial finance between 2010 and 2012 as banks tightened lending criteria following the financial crisis, the report said.

This did show signs of improvement over those years, however, reducing from 52.2% in 2010 to 48.8% in 2012.

The risk profile which influenced lenders’ decisions was also heavily weighted to the tried-and-tested, the report found, as innovative small businesses were over three times more likely to have their applications turned down.

From the half that struggled, 38% of innovating firms failed to secure finance, while only 11.5% of non-innovating firms were unsuccessful.

Reasons offered for this disparity was the greater risk involved with innovation and a higher reliance on intangible assets.

But researchers acknowledged that success in these markets carries greater benefits for the economy as they have the potential to open new markets and grow much faster.

The report suggested that banks needed to examine ways to make the decision-making process ‘timelier’.

The report concluded that there was an obvious role here for the new Business Bank to support access to finance for innovative companies, which are vital for the long-term health of the UK economy.

Friday, 07 June 2013 12:27
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