Overdrafts have long been the lifeblood of SMEs with almost half of all traditional bank finance products used by SMEs being overdrafts. Traditionally they have been easy to arrange, flexible and cost effective as a way to access working capital.
However, these days are now long gone and, despite the economy in the UK starting to show signs of growth, the majority of banks are withdrawing these overdraft facilities from SMEs.
Over the last three years the percentage of SMEs using overdrafts in Q3 of each year has fallen from 25 per cent in 2011, to 21 per cent in 2012 to 16 per cent in 2013, and the most recent Bank of England statistics also show that overdraft lending to SMEs had fallen by over £800m in the month of December alone, representing over 70 per cent in the fall of total lending to SMEs, the biggest monthly fall for over three years.
Platform Black, an invoice trading firms, has surveyed over 1,300 SMEs and revealed the following results:
- 56 per cent of those surveyed have relied on a bank overdraft facility in the past two years and 32 per cent of them in the last six months
- one in five of the SMEs surveyed have seen their bank cut back or suggest a restriction on their overdraft facility
- When asked about other methods of financing their business, 40 per cent use a credit card, eight per cent use a bank loan, 48 per cent use invoice financing and 24 per cent turn to leasing or hire purchase.
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Susie Hughes © Shout99 2014