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SMEs face overdraft uncertainty

Small and medium sized enterprises (SMEs) are still trying to ride the recession, and overdraft facilities play a huge role in providing essential financial back up for companies. Indeed, the majority of SMEs (89%) say that they wouldn’t be able to survive for more than three months without an overdraft facility in place. However, it seems that uncertain times lie ahead, as almost three-quarters (71%) of SMEs have had their overdraft limits reduced by their finance providers. This is worrying news for SMEs and the economy as a whole, when many businesses are walking on a tightrope of survival.

For many SMEs (82%), overdraft facilities are used as a buffer: to cover unexpected costs that crop up and would ordinarily place a great strain on finances. Over two thirds of small businesses (67%) use their overdraft to cover blips in cashflow, which can pose a serious threat to the survival of a business.

Peter Ewen, Managing Director of ABN AMRO Commercial Finance sees this reduction in overdraft limits as a worrying trend. “It’s deeply concerning that SMEs are operating in such a changeable finance environment. Financial stability is one of the most important precursors to growth, so SMEs’ over-reliance on overdrafts could be putting them, and broader economic recovery, at risk”, he says.

It’s not just the restriction on limits that is hitting SMEs where it hurts – the majority (86%) have seen overdraft fees rise over the past year, while an even greater percentage (89%) have noted that the terms and conditions of their overdraft facilities have been altered. This has left many SMEs feeling that they have lost some control of their finances.

“In this difficult financial climate, those businesses looking beyond mere survival to growth and long-term success should seek out more reliable finance, giving them a stable foundation and the confidence to grow,” Peter says.