More than half (55%) of Northern SMEs have seen their bank overdrafts withdrawn or reduced over the past two years, according to a report commissioned by Funding Options. Throughout the same period, only a quarter (25%) of London SMEs have suffered the same fate.
As a result, Funding Options says that the £5 million per day cut from SME overdrafts constitutes a “hidden credit crunch” – with the North of the UK being the most affected. This is mirrored by slower economic growth in the Northern regions, which appears to be lagging behind that of the capital. Growth in the North West stands at 2.6% and while the North East demonstrated growth at 2.4%, London’s growth is ahead at 3.3%.
Funding Options CEO Conrad Ford stated, “Reductions in small business overdrafts are cutting off the fuel for the Northern Powerhouse.”
“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.”
The report highlights that the withdrawal of overdrafts is one of the main reasons that an increasing number of businesses are turning to alternative finance, including invoice finance, asset finance, bridging loans and peer-to-peer lending.
With the launch of the government’s alternative finance referral scheme early next year, it is likely that this will become more of a common occurrence. Under the scheme, banks will have to refer any SMEs that they turn down for funding opportunities to alternative finance platforms. As alternative lending becomes more popular across the UK, IW Capital aims to link Britain’s brightest SMEs with the right investment opportunities, using our expert knowledge and experience of Enterprise Investment Schemes (EIS). Funding for SMEs is integral, not only for the growth of that business but also for the surrounding economy. Although economic growth in the capital is encouraging, more support needs to be offered to businesses nationwide. Our operations may be based in London, however we strive to support businesses throughout the UK and across a range of sectors.