How are bank overdraft cuts affecting small businesses?

A recent report has found that SMEs in the north of England are suffering twice as many overdraft cuts than any firm in London; with a staggering 55% of Northern SMEs seeing their overdrafts slashed or entirely withdrawn over the past two years.


These figures were released from a recent report by the business finance firm Funding Options, which commissioned a study into the overdrafts of small companies.


The report found that just 25% of SMEs in London had their overdrafts reduced, compared to more than half of those in the north of England.


While the Bank of England revealed there would be £5 million worth of overdraft cuts to SMEs, the research from Funding Options has found that these cuts have not been spread evenly throughout the country, leaving many small businesses struggling financially.


Conrad Ford, CEO of Funding Options, has said that this “hidden credit crunch” is disastrous to many small businesses across the country.


The study also found that the economic growth in the north of England is also lagging behind compared to the capital, with the North-East and North-West reporting a 2.4% and 2.6% growth respectively, compared to London’s 3.3%.


Such huge reductions in overdrafts for these businesses are “cutting off the fuel for the Northern Powerhouse”, Mr Ford commented.


While small businesses across the UK have been affected by this “hidden credit crunch”, the North has been hit a lot harder than other locations, he added.


In terms of what is next for these SMEs, many are now turning towards alternative finance methods; adopting services like invoice finance and bridging loans, which can have destructive consequences.


While the UK Government is set to launch a new referral scheme in 2016, allowing banks to direct smaller firms in the right direction, for those currently facing financial difficulty should contact insolvency practitioners who will help them decide the best approach to take.


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