Why are banks letting UK SMEs down?

posted by 6 years ago in News

Just over a quarter (26%) of SMEs within the UK are feeling let down and not supported by their banks. Most who are unimpressed fall into the category of those with turnovers of less than £1 million, where 30% feel ‘unsupported’ according to a survey conducted by YouGov which was sent out to 500 SMEs.

The research which was commissioned by Nucleus Commercial Finance also found that SMEs are unaware of the notice periods given when taking a business overdraft out. 40% have admitted that their banks gave them one weeks’ notice and some believe they did not know when the notice period was.

Of all the overdraft notice periods the most prevalent was 3 months. In regards to banks having to tell their customer when their notice period was due just 14% of small businesses and 10% of medium businesses claimed that they did.

CEO of Nucleus Commercial Finance, Chirag Shah said;

“Unfortunately for SMEs, banks don’t need to give them any notice at all before removing their overdrafts – but they often don’t make this clear. Businesses work this source of unsecured funding into their budgets and rely their overdrafts to plug working capital gaps on a month-by-month basis.

“The fact that a three-month overdraft notice period was the most popular answer suggests many SMEs have a shock coming further down the road when this lifeline disappears.

“Banks are simply reluctant to make this type of unsecured lending available. Basel III required them to acquire more capital to sustain the same level of risk, and SMEs are often their least profitable and therefore lowest priority business customers

“That small businesses don’t feel supported isn’t a shock: according to figures from the Bank of England, SME lending via overdrafts alone has fallen almost £8.5 billion in four years. In fact, the latest BBA figures show in Q1 this year, banks approved £6.1 billion of new SME loan and overdraft facilities. This was 18% lower than in the same quarter last year. It’s worrying trend for SMEs.”