The UK’s small business community is edging towards a potential cash flow crisis as banks continue to withdraw overdraft facilities, according to new research from finance provider, Syscap.
The value of outstanding small business bank overdrafts has fallen by 25 per cent since 2011 – from £20.3bn to £15.4bn this year.
Small business overdrafts can be retracted with little or no notice, which makes them an easy target for banks that are being forced to hold more capital against the loans they write.
Philip White, chief executive officer of Syscap, said: "Overdrafts have traditionally been the building block for small businesses, allowing them some breathing space in their cash flow.
"These statistics show that UK small and medium-sized enterprises (SMEs) are now having to look elsewhere for short-term credit facilities."
In recent months, banks have been lowering previously-agreed overdraft limits "meaning costs like VAT bills can create an unnecessary cash-flow crisis", Mr White added.
Although latest Bank of England figures revealed bank lending to SMEs had increased from £3.6bn in June to £3.8bn in July, Syscap claims loans were dwarfed by withdrawn overdraft facilities.
However, a new campaign from NatWest and RBS could revitalise the business lending relationship. The two merged banks embarked on a campaign actively offering funds to entrepreneurs in June, with one-in-five SMEs agreeing new lending terms and two-thirds taking on additional finance.
Though the campaign remains in its infancy, £3bn has already been lent over the summer months to approximately 8,500 small firms.
Chris Sullivan, corporate banking chief executive of RBS, said: "While economic uncertainties remain, fewer businesses are looking to borrow, so banks need to find ways to give them confidence to invest.
"Instead of waiting for these businesses to come to us, we’re going to them to show them what we’re willing to lend – and it’s working."
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