We don’t have to tell you that this is not a good time to be a small business. Interest rates may be at a historic low, but since stricter capital controls were introduced in 2009 banks are more reluctant to lend than ever. In fact, research shows that small businesses are losing bank overdrafts at the rate of £5.7 million a day, placing huge strain on their working capital.
17% of SMEs responding to a recent survey reported that their overdrafts had been removed altogether, while a total of 30% had seen reductions in limits over the last two years. Meanwhile, data from the Bank of England confirmed that £5 billion of SME overdrafts have been cut since 2011 as banks reduce their exposure to risk.
It’s increasingly grim up north.
The total available credit that has been eliminated since 2011 stands at a staggering £8.4 billion, costing the economy an estimated £2.9 billion. There is also a strong regional disparity – SMEs in the north are losing their overdrafts at more than twice the rate of their London counterparts. In fact, 55% of northern businesses said they had had their overdrafts removed or eliminated, compared to just 25% of those in London.
Alternative finance could fill the gap – if SMEs knew about it.
Of course, banks are not the only game in town, and alternative finance providers will often lend when banks won’t. However, many SMEs have little or no knowledge of the alternative finance market – and this lack of awareness is costing British business dearly.
A recent report by GLI Finance, backed by the Federation of Small Businesses, British Chambers of Commerce, the National Association of Commercial Finance Brokers, the Asset-Based Finance Association, Innovate Finance and techUK, indicates that this knowledge gap is creating a vast economic black hole.
According to the report, 80% of SME finance still comes from banks and 56% of SMEs are completely unaware of any form of alternative finance. The authors call on the Government to launch a well-resourced awareness-raising campaign to change the situation and assist small businesses in finding the finance they need.
What’s more, Britain’s 5.2 million SMEs account for up to 65% of job creation, so this lack of awareness is calculated to cost the economy up to £20 billion by 2020.
To discover how alternative finance can transform your business, and how you can grow and prosper without an overdraft, please read this infographic and then get in touch to discuss your requirements.