Just when small firms need to be sure of continuing access to finance as the economy slows, comes a survey showing that overdrafts are being withdrawn or cut by major lenders.
The clampdown is likely to restrict working capital for hundreds of thousands of UK businesses, and hitting growth prospects.
A survey by FUNDING OPTIONS, an online business financed supermarket, finds that around 17 per cent of the UK’s small and medium sized enterprises (SMEs) have reported that overdrafts have been removed altogether while a total of 30 per cent have seen reductions imposed over the past two years.
And the survey authors say the overdraft cull shows no signs of abating, putting the country’s 5.2 million SMEs under pressure.
According to Funding Options boss CONRAD FORD quoted in the Telegraph business section yesterday, “the withdrawal of overdraft facilities is a significant problem for SMEs.
“A big reduction in the level of working capital available is not just a one-off blow for a small business but it also presents ingoing problems until replacement funding is found or built up”.
Funding Options’ analysis of 160,000 Companies House records showed that British SMEs are now using £76 billion of alternative finance.
The FORUM OF PRIVATE BUSINESS has reported a similar decline in overdrafts, with usage dropping from 25 per cent in 2011 to around 17 per cent this year.
Figures released yesterday by the BRITISH BANKERS ASSOCIATION showed that net lending to non-financial companies fell back by £1.0 billion in September. This followed increases of £900 million in August and £1.4 billion in July.
Despite the drop, access to capital does not appear to be a problem for most companies - although some smaller, higher risk companies may have difficulties.
The Bank of England’s regional agents reported in their third quarter survey of business conditions that “Credit was reported to be readily available for large and medium-sized corporates, with terms and rates having eased alongside rising competition.” The agents also reported that “Credit availability for smaller firms had improved and was approaching normal, although it remained tighter than for other firms.”