SMEs need feedback on declined loan applications

The European Commission is calling on banks to have more transparency and improve communication with SMEs after research showed small businesses are struggling to obtain feedback on declined credit applications. By not being forthcoming with this information, there is a concern that opportunities to improve financial literacy in smaller firms and provide valuable insight to help improve future applications are being missed.

At a time when SMEs are increasingly being encouraged to expand and drive the economy forward, the EC believes removing any barriers to receiving much-needed loans is a crucial move.

Vice-President of the European Commission and Commissioner for Industry and Entrepreneurship Antonio Tajani said: “The financial crisis has affected the ability of the financial sector to channel funds to the real economy. SMEs in particular are key contributors to sustainable growth.

“However they are still finding it challenging obtaining financing. The evaluation highlights that receiving clear feedback from banks on loan applications is crucial for SMEs. Therefore it is essential to revive the dialogue between banks and SMEs.”

The benefits of loan application feedback for small businesses

The overriding finding of this evaluation was that the smaller the business, the greater the likelihood of a credit application being declined by the banks. Around half of the SME survey respondents that had managed to gain feedback said they had found the information useful in securing future funding.

The EC wants an agreed standard of feedback to be established – raising awareness and expectations regarding rights to receive this kind of information. Although SMEs are well within their rights to ask for feedback, under EU directive, the report highlights a distinct lack of awareness from both the applicants and the banks. One of the suggestions made was to detail an applicant’s right to request feedback on the application instructions.

Let us know if you’ve had any issues with applying for a small business loan. Tweet us @theinsuranceoct