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Innovative companies 'hit by bank lending freeze' Innovative companies 'hit by bank lending freeze'
(4 months later)
Britain's most innovative small businesses are more likely to be punished by banks in a lending freeze than firms operating in established markets, according to a study.Britain's most innovative small businesses are more likely to be punished by banks in a lending freeze than firms operating in established markets, according to a study.
More than one-in-three innovative small firms that sought finance between 2010 and 2012 failed to secure the funding they needed, which was almost triple the rate in 2007/8.More than one-in-three innovative small firms that sought finance between 2010 and 2012 failed to secure the funding they needed, which was almost triple the rate in 2007/8.
Companies launching a new product or process were considered risky in almost 38% of cases compared with firms considered "non-innovators" that suffered a 22% rejection rate, up from 11.5% in 2007.Companies launching a new product or process were considered risky in almost 38% of cases compared with firms considered "non-innovators" that suffered a 22% rejection rate, up from 11.5% in 2007.
The report – by economic thinktanks the Big Innovation Centre and the Work Foundation – said a general credit squeeze was affecting innovative firms more than others. "With innovative small and medium-sized companies playing a crucial role in creating jobs and raising productivity, this highlights a systemic failure in the financial system that is holding back the UK economy," it said.The report – by economic thinktanks the Big Innovation Centre and the Work Foundation – said a general credit squeeze was affecting innovative firms more than others. "With innovative small and medium-sized companies playing a crucial role in creating jobs and raising productivity, this highlights a systemic failure in the financial system that is holding back the UK economy," it said.
Ministers have put in place measures to breath life back into the banking system and encourage credit but with little effect. Recent figures from the Bank of England showed a sharp fall in the amount borrowed by businesses.Ministers have put in place measures to breath life back into the banking system and encourage credit but with little effect. Recent figures from the Bank of England showed a sharp fall in the amount borrowed by businesses.
Non-financial firms paid off £3bn of loans in April, compared with an average monthly repayment of £1.3bn over the previous six months. Year-on-year, small and medium-sized enterprise (SME) borrowing fell 3.3%.Non-financial firms paid off £3bn of loans in April, compared with an average monthly repayment of £1.3bn over the previous six months. Year-on-year, small and medium-sized enterprise (SME) borrowing fell 3.3%.
A Bank of England scheme to boost lending, known as Funding for Lending, aims to pump up to £80bn of extra credit into the economy. So far it has only prevented some banks from withdrawing more credit from the system, offsetting banks that have expanded their loan books.A Bank of England scheme to boost lending, known as Funding for Lending, aims to pump up to £80bn of extra credit into the economy. So far it has only prevented some banks from withdrawing more credit from the system, offsetting banks that have expanded their loan books.
The report – Credit and the crisis: Access to finance for innovative small firms since the recession – drew on responses from almost 11,000 SMEs and shows how access to finance for all SMEs has worsened since the start of the recession, with failure rates for securing loans now double those of 2007/8.The report – Credit and the crisis: Access to finance for innovative small firms since the recession – drew on responses from almost 11,000 SMEs and shows how access to finance for all SMEs has worsened since the start of the recession, with failure rates for securing loans now double those of 2007/8.
The report found that half of all SMEs had difficulties finding credit after 2010, while one in four did not receive any funding at all.The report found that half of all SMEs had difficulties finding credit after 2010, while one in four did not receive any funding at all.
Author Neil Lee said: "The future growth of the UK economy depends on investment in new products and services. Yet it is harder for innovative small firms to obtain finance than their peers. A lack of finance for the firms which need it most will be a long-term drag on the UK economy. Without action from policymakers, banks are unlikely to change their lending behaviour."Author Neil Lee said: "The future growth of the UK economy depends on investment in new products and services. Yet it is harder for innovative small firms to obtain finance than their peers. A lack of finance for the firms which need it most will be a long-term drag on the UK economy. Without action from policymakers, banks are unlikely to change their lending behaviour."
A separate report in collaboration with Nesta, a charity funded by the Lottery that promotes innovation, raises concerns over "the long-term disconnect between capital raised by banks and investment in innovative activities".A separate report in collaboration with Nesta, a charity funded by the Lottery that promotes innovation, raises concerns over "the long-term disconnect between capital raised by banks and investment in innovative activities".
The report, Two Spheres That Don't Touch: The relationship between British finance and British innovation, found that in the run up to the financial crisis, investment in innovation was falling as a proportion of total capital.The report, Two Spheres That Don't Touch: The relationship between British finance and British innovation, found that in the run up to the financial crisis, investment in innovation was falling as a proportion of total capital.
"Between 2001 and 2007, total capital raised by banks increased by £1340bn, while investment in innovation rose by just £26bn. This suggests a structural problem in the financial system that may have contributed to the depth of the crisis. Subsequent years' findings suggest that this disconnect has persisted beyond the recession.""Between 2001 and 2007, total capital raised by banks increased by £1340bn, while investment in innovation rose by just £26bn. This suggests a structural problem in the financial system that may have contributed to the depth of the crisis. Subsequent years' findings suggest that this disconnect has persisted beyond the recession."
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