Cashflow problems increase bank borrowing

Bank Borrowing

Late–paying customers are forcing small firms to increase their bank borrowing to maintain cashflow, according to the Federation of Small Businesses (FSB).

Bank Borrowing

Commenting on figures from the British Bankers’ Association (BBA) which revealed that bank lending to small firms (those turning over £1 million or less) increased by 11 per cent in the 12 months to June 2008, FSB public affairs spokesman Stephen Alambritis, said:

“Businesses are not borrowing to expand, they are borrowing to keep still.”

“We think lending is growing not because people are growing their businesses, but because small businesses are not being paid on time by the customers they supply. Businesses are having to go to the bank to pay their rent, rates and other bills — it is a worrying trend.”

Alambritis pointed to the example this summer of high street chemist Alliance Boots imposing on its suppliers payment terms of 75 days from the end of the invoice month, rather than the 30 days it had previously honoured.

The BBA figures also highlighted that in the 12 months to June 2008, small firms’ overdraft borrowing increased by just three per cent — to a total of £9.2 billion. BBA statistics director, David Dooks said:

“The reassuring thing is that small businesses are using term loans and taking a long–term view rather than increasing their overdraft facilities — that would be more worrying,”.

“In the slowing economy that we’re experiencing small businesses are utilising all the cash that they are generating,” he added. “Whereas they would draw on their resources or deposits for cashflow in previous years they’re now not able to do that to the same extent.”

Barclays bank SME market analysis director, Dr Richard Roberts, pointed out that the BBA figures also show that overall deposits from small business still exceed borrowing by £1.5bn.

“This is positive, as it shows that small businesses are keeping their borrowing in line with their assets, rather than borrowing excessively,” said Roberts. “These are savvy businesses which have been prudent with their finances.

“Though there was a drop in the rate of growth of small business deposits in the first quarter of this year, this is unsurprising as we are coming off a record profitable period in 2006/early 2007,” he said.

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