Banks Have Been Axing or Reducing Small Business Overdrafts

A concerning percentage of small and medium-sized businesses in the UK are being affected by their bank overdrafts being unexpectedly reduced or axed. According to a report published by Funding Options, around 17% of British SMEs have had their overdraft privileges taken away completely while 30% have been hit with reductions over the last two years. In fact, small business overdrafts have been shut down at an average rate of £5 million per day since 2011, leaving many firms that usually rely on this mode of financing struggling to compensate.

There’s a concern that having such a popular and convenient credit option removed is hindering the growth potential of smaller firms across the UK. It’s believed banks have been limiting these overdrafts in an attempt to ease the risk element on their balance sheets.

Conrad Ford, Chief Executive at Funding Options, stressed that: “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.”

Despite various alternative lenders plugging the gap somewhat – with around £76 billion in non-bank finance now being accessed – many SMEs still rely on more traditional methods of business finance, including bank overdrafts and loans.

Funding Gap for Small Businesses

This research follows on from a recent report published by the Competition and Markets Authority (CMA) featuring recommendations on how to tackle the funding gap for small businesses. Creating a single-application service where SMEs could apply for multiple financing options at the same time was one of the main solutions being championed.

“A single-application service for small businesses seeking finance would make a huge difference. How many of them have the senior management time to spend days filling in numerous virtually-identical forms?” Mr Conrad added.