Factoring Partners, Weekly Blog.
The Daily Telegraph have recently reported that overdrafts for SME’s in the UK are being reduced at what they describe as an ‘alarming rate’. In a survey of 250 business owners 17% reported a complete removal of their overdraft and 30% declared their facility had been reduced.
Following the banking crisis that saw such massive tax payer involvement in (particularly) Lloyds and RBS greater capital ratio controls were imposed. (From a regulatory point of view overdrafts are treated as fully drawn funds even if the actual user only uses a part of the facility, in other words if a business has an overdraft facility of £1m the bank has to have a reserve level equating to that amount, regardless of the amount actually used)
Banks reducing overdraft limits or facilities in total will continue at a pace and in reality as long as facilities provided by invoice and alternative financiers replace them then the SME market is served by adequate options. In time it may be that overdrafts, in any material sense, are removed altogether, the demand nature of them and the manner in which they affect the banks capital ratios render them less appropriate than properly structured asset based lending facilities.
With the above in mind the lack in material growth of client numbers using Invoice Finance (as detailed in last weeks blog) is a little surprising but the slack, in part, is taken up by the alternative finance sector and its estimated that over 3% of all ‘bank’ lending to SME’s now comes from providers of finance who themselves are less than 5 years old.
Whether overdrafts do completely disappear or not is largely academic, what’s important is that the SME market is well served by financing options and options that are appropriate not just in terms of amount but also term and security
At Factoring Partners we understand business finance requirements and work with lenders from the conventional to the alternative. In 20 years of presenting financing opportunities to lenders our percentage of facility approvals would be second to none.