The research has revealed that a third of small companies have applied for an overdraft or overdraft extension in the last two years. The latest figures available suggest that the total value of SME overdrafts now stands at just over £9bn. This is up marginally from six months previously when, according to the British Banking Association, UK SMEs had £8.9bn worth of accounts in the red
With high street lenders charging interest on overdrafts at rates of 23.5%, that debt over the course of a year could see SMEs cumulatively paying around £2bn to the banks in interest.
the total value of SME overdrafts now stands at just over £9bn
Companies with a turnover between £250,000 and £500,000 are the most likely to look to an overdraft facility as opposed to a loan for finance. Just under half of companies in this revenue bracket have done so in the last two years, while under a third of companies this size claimed to have made an application for a bank loan in the same period.
"Business operators may feel an affinity with their current account provider, so seeking an overdraft extension rather than a loan from another provider may seem a more appealing option. The rates of interest they face paying, however, are likely to be far higher than for a business loan," said Chris Poll, CEO of CreditPal.
"Though there's been much publicity over the banks' reluctance to lend it is now clear that there is money available for sound businesses. It is crucial that those enterprises seeking finance provide a reliable indication of their trading position. Lending has to be responsible, as no one wants to see a return to an era of banking profligacy, so informed decisions need to be made by assessing the real underlying performance of a business."
