Small northern businesses are suffering twice as many overdraft cuts as London firms, with 55 per cent of Northern SMEs seeing their overdrafts cut or entirely withdrawn over the past two years, according to new research.
Bias against Northern firms
Business finance group Funding Options commissioned a study into small business overdrafts and found that just 25 per cent of London SMEs have had their overdrafts reduced, compared to over half of all Northern SMEs.
Last month, SME Insider brought to you news of a Bank of England study which revealed that around £5m worth of overdrafts have been taken away from SME owners every day for the past four years.
Funding Options’ research argues that the overdraft cuts have not been uniform across the whole of the UK, with CEO Conrad Ford claiming that overdraft cuts are the ‘hidden credit crunch’ affecting Britain’s SMEs.
Lack of economic growth
Funding Options adds that economic growth in the North is struggling compared to the nation’s capital, with the North-East and North-West reporting growth of 2.4 and 2.6 per cent a year, while London is reporting growth of 3.3 per cent.
‘‘Reductions in small business overdrafts are cutting off the fuel for the Northern Powerhouse,’’ said Ford.
“The ongoing reductions in overdrafts for small businesses is the hidden credit crunch, and while the whole country has been affected, the North has been hit a lot harder than London.”
“As the banks have been forced to reduce their exposure to small business lending, they have focused on overdrafts as a risk that can be eliminated with relative ease, and at short notice,” continued the CEO.
What’s next for Northern SMEs?
With Northern firms being stripped of their overdraft fees, many are turning towards alternative finance. Services such as invoice finance, asset finance, bridging loans and peer-to-peer lending are becoming more and more popular for SMEs searching for extra working capital.
The government is encouraging smaller firms to jump on the alternative finance bandwagon, as they are set to launch a new referral scheme in 2016 that would allow banks to direct SMEs that they turn down for funding to alternative finance platforms.