"Financing projects from £50,000 to £100 million"

Banks could compromise recovery by withdrawing overdrafts

Banks could compromise recovery by withdrawing overdrafts

There are concerns that banks could be about to compromise the recovery by axing overdraft facilities for SMEs.

Finance provider Syscap has discovered that the value of small business overdrafts has fallen by a quarter over the past two years as banks have continued to rein in their credit provision.

Philip White, the company’s CEO, believes that the pressure that banks are under to improve their capital positions in a short timescale has left small businesses vulnerable to a potential cash-flow crisis.

"Overdrafts have traditionally been the building block for small businesses, allowing them some breathing space in their cash flow," he said.

"These statistics show that UK small and medium-sized enterprises (SMEs) are now having to look elsewhere for short-term credit facilities."

Nationwide and Barclays are the two institutions under the most pressure, after the Bank of England accelerated its timescale for the pair to improve their capital leverage ratios.

Nationwide chief executive Graham Beale recently echoed the warnings of the Barclays chief, Antony Jenkins, that the move would cause repercussions. The mutual confirmed last week that it was delaying its move into the market for commercial lending (read more).

Because business overdrafts can be retracted with little notice, this makes small businesses and their credit facilities an easy target for banks who need to sure up their capital positions, Mr White suggests.

"Banks are lowering agreed overdraft limits, and creating situations where costs like VAT bills can create an unnecessary cashflow crisis, he said.

"An overdraft can be withdrawn by a bank at any time, meaning that any capital investment programme that relies upon one doesn’t have a solid foundation."

If you're concerned about your overdraft provisions, see what's on offer from our list of business banking partners.

Monday, 02 September 2013 15:58
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