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Late last year, Dot Net Solutions, a small business in Windsor, applied for a £100,000 loan at Barclays bank through the government's small firms loan guarantee scheme. It was turned down, as it had been when the firm applied to NatWest, Lloyds TSB and RBS before it.
Under the scheme, designed to help lending to young firms, the government would have guaranteed three-quarters of the loan, leaving just £25,000 at risk.
Dan Scarfe, who set up the firm with his brother four years ago, said: "The bank said it had refused the loan because we couldn't offer any security for the 25% not covered by the government. They are just not interested in taking any more risk ... there is no one you can appeal to. The banks are judge and jury."
Lloyds has also cut lending against invoices at Dot Net, hurting cashflow.
For many small firms, the contraction in lending in the fourth quarter disclosed by the Bank of England yesterday, despite the government urging banks to keep the taps open, was not a surprise.
Another entrepreneur, who runs a golfing holiday business, said he faced disaster after being turned down for a £200,000 loan through the government scheme. The businessman, who asked not to be named, has run the company for six years, and started it with £50,000 from remortgaging his house. Turnover has hit £1m, but last year, as the pound sank in value against the euro, he lost £150,000. He approached his bank, Barclays, for the loan in November. "They wrote to me and said the government scheme was not allowed to cover existing debt. We are a young company and can't absorb those losses."
He fears that without the loan, his balance sheet will not be robust enough to qualify for an Abta bond, leaving consumers unprotected and ruining the firm. He also complained at the rise in interest rates on the firm's £37,000 overdraft facility. Three years ago, it was 4.5% above the base rate but has risen to 11% above the base rate, only recently dropping down again to 9%. His interest bill in the most recent quarter was £1,100. He has since widened his search and made contact with both Lloyds and NatWest, as well as approaching business "angels".
In November's pre-budget report, the government announced a package of measures for small businesses, including a £1bn finance scheme for otherwise solid companies struggling to raise working capital in the credit squeeze. Alistair Darling also said that seven UK banks had applied for £1bn of £4bn made available by the European Investment Bank for loans to smaller firms. It is also making £50m available as equity investments in small firms.
But each of the small firm owners complained that there was scant detail available about any of the schemes.
At the time of the pre-budget report, the Guardian interviewed Stephen Peters, who had opened two bike shops in the summer and was worrying how he would pay the bills. The situation has since got worse, after a poor Christmas. He is looking to raise £80,000 to help cashflow and absorb some of the losses he has taken as the market has slumped, in the hope of reaching the spring, when he hopes business will start to improve.
"Things have deteriorated," he said. "You can't get any kind of money for a retail business. We are in the part of the market that is strategically well placed ... but the banks are just not interested."
His problems have been made worse by suppliers now refusing credit. "The banks are upping the ante, they want guarantees of fixed assets, houses - they won't take any kind of risk." He has been given an overdraft of just £2,000. He raised an original £25,000 from HSBC with a personal guarantee but without the additional £80,000 loan, he will have to close the business, he said.
HSBC announced a £1bn fund last month to invest in small firms in Britain but Peters' bank said lending criteria had not changed. "It is all rhetoric ... I am not very hopeful," he said.
The Federation of Small Businesses partly blamed a generation of bank branch managers who had never been through a downturn and, out of fear, were bringing down the shutters. It said many businesses feared going to their bank for further cash, in case it raised alarms and only made matters worse.
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