When banks say no

Green shoots or no green shoots, Britain's high-street banks are still refusing to lend to businesses and the consequences are proving catastrophic. About 120 small firms are going bust every day and thousands more are teetering on the brink of bankruptcy.

When the government unveiled its Enterprise Finance Guarantee (EFG) scheme a few months ago to help companies that were facing temporary cash-flow problems, there were loud cheers from Britain's business community.

The £1.3 billion of funding, which can be given by high street banks in the form of loans or overdrafts from £1,000 to £1m, is 75% guaranteed by the government. It is available to businesses that have a turnover of up to £25m and can run for a period of up to 10 years.

However, the honeymoon period is well and truly over and the corporate world is awash with tales of business owners who have been refused a loan under the EFG scheme or who are struggling with the hurdles involved in accessing it.

Those applying for funding say that getting a response of any kind from banks can take several weeks.

Meanwhile, the suspension of the highly popular Small Firms Loan Guarantee (SFLG) scheme when the EFG was launched, has added to the frustration about the inability to access cash from its replacement.

It is not just the EFG that is causing problems either. The Federation of Small Businesses' survey of 4,000 members earlier this year, found that 28% of firms had seen an increase in the cost of their existing finance such as overdrafts or loans over a two-month period. Many of these changes had been made with no notice whatsoever.

The Forum of Private Business (FPB) has also found that its members are getting a raw deal on overdrafts. Its survey of 6,000 small businesses found that 18% of those taking part said there had been an increase in bank fees compared with last year.

The FPB's spokesman Phil McCabe said: "Both the cost and the availability of overdraft facilities are becoming more restrictive. We are hearing of cases where business owners have gone to see their bank managers to renegotiate their overdrafts and have had them withdrawn altogether. And these are apparently viable concerns.

"Overdrafts are used by small-business owners for survival and everyday cash-flow purposes. Having restrictions on loan lending that is used for investment is bad enough, but when you have your overdraft removed it is like someone switching off your life support."

There are some bright spots. RBS and NatWest, for example, have said they will maintain existing overdraft agreements for small-business customers with a turnover of less than £1m, provided the terms and conditions are not breached.

However, there is a clear need for businesses to think more creatively about finance. First up, a firm should not stick its head in the sand and hope any potential problem goes away. It won't. The worst possible scenario is to wait until a business really is in trouble before sorting out an alternative source of capital.

If the bank is not playing ball, explore alternatives. Make Your Mark, a Government-backed campaign, has an online A to Z of Access to Finance, which lists a number of alternative options from business angels, to investment funds, to grants. It even gives some thought to pitching to the Dragons Den's online experts Shaf Rasul and Julie Meyer.

Business Link is another useful resource for help on raising finance. Other sources will depend on the type of business. The National Endowment for Science, Technology and the Arts, for example, invests in early stage companies, while UnLtd helps social entrepreneurs.

There are also specialist options for women, who traditionally find it harder than men to gain funding. Stargate Capital is a London-based fund dedicated to putting female entrepreneurs in touch with venture capital and private equity funding. Addidi business angels are a network of female entrepreneurs that invest in SMEs run by women and men.

Those looking for finance should also check j4b.co.uk, which has information about grants in the UK and Ireland, and covers European, national, Government and lottery funding, as well as regional and local funding.

There will, inevitably, be many rejections along the way. Sahar Hashemi, co founder of the coffee shop chain Coffee Republic, famously got 39 rejections for funding before getting finance. Yet, she has heard of some people who had had around 700 rejections before winning finance.

Talking to Smartfundit.com, an online business finance marketplace, she said; "For me it's a numbers game - you should almost notch up your rejections. My formula in life is that for the 20 times you ask, you should expect to get no's the first 19 times and only then should you start expecting to get a yes."

The most successful business practitioners learn from each rejection they get rather than being defeated by it, using the most specific feedback they can get to refine an application and stand a better chance next time.

Until there is a greater level of understanding between banks and the business community, it is up to firms to take action to protect their businesses and continue to plan for tough times ahead.