£5 Million Cut From SME Overdrafts Each Day

£5 Million Cut From SME Overdrafts Each Day

Banks slash overdrafts, with aggressive cuts hitting northern SMEs

10th November 2015

By Elma Glasgow

Small businesses continue to battle against the might of the traditional lending sector, with banks cutting £5 million from SME overdrafts each day. SMEs in the North are the worse affected from the cuts in working capital.

A survey of 250 small businesses by Funding Options, reveals that 55% of SMEs in northern England have suffered from reduced or withdrawn overdrafts since 2013. However, only 25% of London-based businesses have experienced the same fate.

The research by the online business finance supermarket reveals that in the last 4 years, the £5 million in cuts has been more aggressive in the so-called Northern Powerhouse. Although there's been a reduction in this trend over time, the region is still disproportionately struggling.

Overdraft cuts
Overdraft cuts:

Northern SMEs impacted more severely than London businesses

In fact, to add to the gloomy news, Funding Options cite RBS regional growth data, which indicates annual economic growth in the North West (2.6%) and North East (2.4%) is lagging behind London (3.3.%).

Funding Options CEO, Conrad Ford, is concerned that banks' actions are "cutting off the fuel to the Northern Powerhouse" and fears the end of the business overdraft. He continues:

The ongoing reductions in overdrafts for small businesses is the hidden credit crunch, and while the whole country has been affected, the North has been hit a lot harder than London. As the banks have been forced to reduce their exposure to small business lending, they have focused on overdrafts as a risk that can be eliminated with relative ease, and at short notice. We’re now approaching the end of the business overdraft as a tool for working capital. Conrad Ford, Funding Options

Such cuts are driving even more enterprises to seek out alternative sources of finance. In fact, recent analysis from Fleximize predicted the alternative finance market would smash through the £5 billion mark by November 2015, as more borrowers turn to options such as specialist funding, invoice finance, pension-led funding, crowdfunding and peer-to-peer lending.

Funding Options also highlights the forthcoming government referral scheme whereby banks will refer SMEs to alternative lenders if they're unable to provide funding themselves.