The independent report (PDF 5.2MB), published by Professor Russel Griggs OBE, Independent External Reviewer of the main banks’ Appeals Process, analyses the number of small businesses appealing after having their loan applications refused, and the number which successfully have those refusals overturned.

It found that in the 12 months to March 2013, 735,000 credit applications were made in total to BBA member banks. Of these 86% were approved and 14% or 102,900 declined, and of the declined applications only 3% went to appeal.

Option to appeal

The number of appeals rose from 2,177 in the previous year to 3,311 in the year to the end of March, as awareness starts to increase among SMEs of the option to appeal if they feel a credit application has been rejected unfairly. The SME Finance Monitor for the first quarter of 2013 shows awareness of the appeals process has improved to 13%, compared to 10% in the last three months of 2012.

Of the 3,311 appeals, nearly 40% or 1,297 were upheld but in the majority of these cases the final outcome and structure of the facilities agreed looked very different from the original requests.

In the report’s executive summary, Professor Griggs said: “From all that we have seen over the last year both from the banks themselves and from their customers, the issue is one of demand rather than supply in terms of lending that can be sanctioned.

“I do not think that the banks having money to lend is an issue which it may have been just post 2008. The issue is as much about finding good projects to lend to or SMEs who want to increase their credit.”

He added that some SMEs, especially small ones, do not understand the difference between debt and equity “so still ask banks at times for debt that is in effect equity and so beyond the risk boundary that debt would allow the banks to operate within”.

Business Hotline

A spokesman for the RBS Group said: “RBS lends more than any other bank to businesses but we always want to improve on this, which is why we were first to introduce a Business Hotline service to scrutinise declined applications.

“We’ve since written to approximately 1 million SME customers advising them how to appeal a lending decision – often a fresh pair of eyes can find a solution or an alternative means of finance.”

Poor credit scoring remains the main reason for declining applications for credit below £25,000. To try to solve this issue, RBS has worked alongside other banks and the Credit Reference Agencies to produce a business friendly guide to help explain the credit scoring process (PDF 1.3MB).

The Appeals Process was established in 2011by the Business Finance Taskforce, comprising the BBA, RBS, Barclays, HSBC, Lloyds, Santander and Standard Chartered. External reviewers, led by Professor Griggs, monitor the UK’s biggest banks’ commitment to a fair, prompt and transparent appeals process for businesses declined lending.

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