Small businesses seek greater bank support

A quarter of the UK’s small businesses have suggested they could be better supported by their bank, according to new research.

Bank of England figures highlight that small business lending via overdrafts has fallen by nearly £8.5 billion in four years, which is causing concern for 26% of firms according to Nucleus Commercial Finance and YouGov.

When firms with a turnover of less than £1 million were taken into account, the figure rose to 30%, suggesting that small business may not be getting the support they need.

Of the 500 businesses questioned as part of the study, 40% said that financial lenders were poorly communicating notice periods relating to business overdrafts – these businesses either did not know their notice period or thought it was significantly longer than it actually is.

When asked about the notice period – which banks do not need to give – 14% of small businesses and 19% of medium-sized businesses said banks were obliged to give three months, or more than three months’ notice.

While banks do not need to give any notice before removing an overdraft, the issue for small businesses is that many do not communicate that clearly.

For firms that include the unsecured funding in their budgets, often relying on overdrafts to plug gaps in working capital each month, this can cause problems with finances.

However, a number of alternative financial options do exist and firms should explore their avenues if they are seeking to expand or solidify their position.

According to Nucleus Commercial Finance, banks are reluctant to embrace unsecured lending given the risks involved.

Citing the Basel III voluntary regulatory framework, the firm believes that banks need to acquire more capital to sustain the risk – something they are not prepared to do for low profit and therefore low priority business customers.

It is therefore essential that small business are aware of the options available to them and of any potential restrictions that might exist.

By Phil Smith

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