Small Business Overdrafts Fall by £100m As Banks Adhere to New Regulations

The value of bank overdrafts to small enterprises has fallen 42% over the past five years

Small Business Overdrafts Fall by £100m As Banks Adhere to New Regulations

Small business overdrafts are ‘dying out’ with the value of overdrafts falling by £100m a month, according to a report by Funding Options.

The findings found that small businesses were borrowing £12.1bn in bank overdrafts at the end of March this year, compared to nearly £14bn at the end of September 2014, representing a fall of 13%.

The value of bank overdrafts to small enterprises has fallen 42% over the past five years down from £20.9bn in April 2011.

Its suggested that small business overdrafts are now particularly unattractive for banks, who have been reducing this type of lending since the recession with banks required to retain higher levels of regulatory capital if they have large amounts of unsecured lending to smaller firms on their balance sheets.

Conrad Ford, CEO of Funding Options, said: “£100m is being chopped from small businesses’ overdrafts every month, and even the most successful small businesses are at risk of their overdrafts being cut with almost no notice.

“Demand for small business funding is still as strong as ever, but the fact is that banks have to question the logic of extending overdrafts to this section of the economy. This is not so much about small business’ ability creditworthiness – this is purely a result of how banks are being forced to operate post-credit crunch.

“Given that overdrafts are unsecured, with no set repayment terms, they have fallen out of favour with regulators. Banks are cutting their exposure to them in response.

“The problem for small businesses is that it is relatively easy for overdrafts to be withdrawn: the comparative lack of formality as opposed to a loan, for instance, means that access to an overdraft is not set in stone.

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