Half of North's businesses hit by banks' lending squeeze

More than half of the North's businesses today reported suffering toughened bank lending conditions.

An Institute of Directors survey showed more firms were having more difficulty with their bankers than their counterparts in Britain.

The survey showed 53% of businesses in the North funding bank lending conditions tougher during the first three months of the year compared with 43% in Britain.

However there were clear wide differences in the way firms were treated by their bankers – 40% reported things were easier or much the same.

The tougher conditions reported by businesses related mainly to higher interest rates – despite the drop in bank rate – and higher arrangement fees – some respondents also pointed to a much more cautious approach from their banks.

Joanne Stuart, chairman of the IoD in the North said the survey confirmed anecdotal evidence of the effects of the credit crunch on local businesses.

Ms Stuart said: “One of the issues highlighted in the survey is that various interventions taken by the government have yet to bite.

“Despite cuts in the official interest rate, 48% of respondents reported the interest rate they were paying had increased because of a move from Base rate plus to LIBOR (the interbank lending rate) plus.

“In addition 64% said that overdraft/loan arrangement fees or operating charges were more expensive.”

The survey showed a widespread lack of awareness and minimal uptake of various government-backed funding schemes.

While 47% of respondents were aware of the new Enterprise Finance Guarantee Scheme, awareness of other schemes such as the European Investment Bank Fund was much lower, with the Accelerated Support Fund from Invest NI registering even less awareness.

The vast majority of respondents reported that the bank had not discussed such schemes with them.

Ms Stuart said: “This sets a challenge for government and the banks to improve knowledge of the wider range of finance available to companies and to explain in more detail how these schemes work in practice.”

The IoD said contrary to some perceptions of a dearth of banking finance, the survey showed 93% of businesses had been able to renew their existing bank loan and 80% were able to renew an existing overdraft.

Some 63% of respondents were able to extend an existing bank loan. However overdrafts were more difficult, with 64% of requests for a new overdraft and 55% of requests for an extension of an overdraft declined.

Nevertheless there were positives – with some 60% of firms saying they had not postponed investments despite the credit crunch.

Ms Stuart said the IoD had already represented the views of their members to the banks and would be going back to them for fresh discussions following the survey results.

“It is important that we continue to monitor and report to lending institutions so that we can encourage them to help Northern Ireland businesses respond quickly to market opportunities,” she said.