SMEs slam banks for withdrawing overdrafts overnight

2nd September 2015 | News

UK small business owners have revealed their biggest grievance with the banks is their withdrawal of millions of pounds worth of overdrafts overnight, without prior warning.

That’s according to new research from online business finance supermarket, Funding Options, who said small firms made 741 official complaints to the Financial Ombudsman Service regarding bank overdrafts and loans in 2014.

Funding Options believes its research demonstrates that small business overdrafts have been culled by high street banks at a rate of £3.7m per day since 2011.

The firm warns these complaints are merely “the tip of the iceberg” when it comes to withdrawn overdrafts as only the smallest firms can officially complain to the ombudsman – those with ten or more employees or experiencing a turnover of more than £2m are unable to file a complaint.

Subsequently the withdrawal of funding has led to many small businesses seeking alternative forms of finance.

Funding Options estimates £76bn of alternative financing is currently utilised by SMEs – almost half of the amount the banks are lending to small businesses. In the last 12 months SME alternative finance lending has increased by 43 per cent alone.

Conrad Ford, chief executive, Funding Options, said: “The death of the business overdraft is hitting a lot of SMEs hard, as it has been a mainstay of small businesses finance for 250 years.

“That’s one of the drivers of alternative finance becoming increasingly mainstream.

“We are seeing more and more SMEs exploring their alternative finance options after having their overdrafts withdrawn unexpectedly.

“Options such as invoice financing, non-bank commercial mortgage lending, leasing, crowdfunding and peer-to-peer lending all provide effective funding for small businesses.

“There are many alternatives out there so every business should be able to find funding that works for them.”

Ford believes the British Business Bank’s alternative finance referral scheme will play an increasingly influential part in bridging the funding gap for small businesses with the raft of alternative finance options available.

“There is still a knowledge gap among a lot of small businesses over what kind of alternative finance might be best for them,” added Ford.

“The British Business Bank’s referral scheme could bridge that gap virtually overnight if it is implemented in the right way.”



Image: Winniepix