£5 million per day overdraft shutdown causes SMEs to struggle

posted by 4 years ago in News

Wages, premises, running costs and equipment all stack up in small and medium sized businesses, but bosses are now suffering from a rapid bank clamp down on overdraft facilities according to a new report.

The research, carried out by Funding Options, found that growth opportunities for SMEs are being hampered because of mainstream lenders reducing and withdrawing overdraft finance. They claim that around 17 per cent of SMEs are reporting that their overdrafts have been axed completely – with 30 per cent seeing reductions in the last two years.

Two hundred and fifty business owners were questioned for the research which warns that the overdraft restrictions show no sign of stopping, placing huge pressure on the nation’s 5.2 million small and medium-sized businesses.

Chief Executive of Funding Options, Conrad Ford said, “A big reduction in the level of working capital available is not just a one-off blow for a small business but presents ongoing problems until replacement funding is found or built up.”

Funding Options’ analysis of 160,000 Companies House records showed that UK SMEs, unable to access capital from the banks, are now using £76bn worth of alternative finance. This means that alternative lending represents 46 per cent of the worth of traditional loans and overdrafts.

Head of Businesscomparison.com, Philip Brennan, says that businesses need a more competitive marketplace when it comes to accessing funding,

“Only last week the CMA (Competition and Markets Authority) highlighted the need for a comparison site for businesses to access the best funding for them at the most competitive rates. At Businesscomparison.com we cover that market. While it is disappointing that the banks are reducing overdraft lending to businesses there are other funding streams such as invoice finance, asset finance and working capital loans that can be acquired from alternative lenders and challenger banks.”