High street banks have been urged to make businesses aware that there is a system for appealing when refused credit.

In a report published by the Banking Taskforce for the British Bankers Association, it was revealed that 2,177 businesses that were refused lending took the matter further under the Appeals Process set up April 2011. Of these 2,177 businesses, 39.5% of decisions were overturned to allow both parties reach a satisfactory conclusion to a lending application. However, of the 827,000 small-medium enterprises that applied for any form of credit during this period, 114,000 were declined, with only 2% of these appealing.

Author of the report Professor Russel Griggs said banks need to make small businesses aware that there is a process to make appeals if they have been declined credit. “External communication about the Appeals Process needs to be enhanced to ensure that all potential and current customers are aware of the process,” he said.

The Forum of Private Business (FPB) said the report highlighted a need for change in business banking. “The fact that almost 40% of lending appeals have been completely overturned says very clearly that banks are simply not gauging some small business lending risks accurately in the first place, and that has to change,” said FPB senior policy adviser Alex Jackman.

He added that the report was correct in identifying an over-centralised banking system that relies far too heavily on automated risk criteria and on data from credit rating companies, many of which appear to use wildly different factors to assess a firm’s creditworthiness. “We need more real bank managers who can understand the merits of individual businesses and make lending decisions accordingly,” said Jackman.