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Microbusinesses lose faith in banks - over a million resort to payday loans as an alternative

Press Release - 10 February 2014

  • 2.5 million microbusinesses wouldn’t bother knocking on the bank’s door
  • One in ten believe the banks simply aren’t interested in lending to them
  • A quarter (25%) have used payday lenders to start their business
  • A fifth (22%) have turned to payday lenders to grow their business in the last year – only 14% turned to the bank

UK microbusinesses have little confidence in borrowing from the banks in the near future, reveals Amigo Loans. Over half (54%) of UK microbusinesses say it’s not even worth approaching the bank, and a quarter (25%) have instead resorted to a predatory payday lender to fund their start-up – a figure that has increased from 16% this time last year.

It doesn’t stop at start-up costs. In the last year alone, one in five (22%) SMEs has taken out a payday loan to grow their business, according to research from Amigo Loans – and just 14% received funding from their bank. A fifth (21%) of microbusinesses say it’s not worth approaching the bank because they will refuse to lend to them, while a third (33%) won’t bother because of alternatives currently on the market that are quicker and easier to receive funding from. One in ten (10%) believe banks simply aren’t interested in lending to small businesses.

As for future borrowing, a third (35%) of microbusinesses say they are unlikely to approach the bank for future funding, and a further third (32%) say that while it’s worth trying the bank, they are very selective with who they lend to. Almost half (45%) believe bank lending to small businesses will not increase over the next year.

Banks have turned their backs on the people who need them most. Small businesses have now lost all faith and the lifeblood of our economy - the mechanics, the window cleaners, the shop owners - are turning to dangerous payday loans. Payday companies make vast sums of money from high APRs and from the people who can’t pay back and are able to spend enormous amounts on marketing from this pool of money. The safer more responsible lenders, who don’t have the same resources, don’t stand a change of being heard by the people who need them most; the very same people the banks have shunned.

However, it’s not all doom and gloom. Funding via alterative lending options, such as guarantor loans, is also on the increase. A fifth (21%) of microbusinesses have taken out an alternative loan – an increase on 14% a year ago, while almost a third (29%) have approached an alternative lender in the last year. James continued: “Payday loan sharks needn’t be the first port of call for microbusinesses seeking funding; it’s essential they are aware of the safer and more cost efficient lending options available, such as credit unions, peer to peer loans and guarantor loans. We would like to see a not-for-profit, all of market comparison site for loans, which all lenders are forced to promote on their advertising.

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