SMEs and Firms in the North of England Suffer From Overdraft Cuts

According to research from business financial comparison site Funding Options, twice as many small and medium sized enterprises (SMEs) in the North of England have been subject to twice as many overdraft cuts as their counterparts in London.

In the past two years, 55% of companies in the North were found to have had their overdrafts cut, compared to just 25% in London.

Across the United Kingdom, 30% of businesses have had their emergency credit options reduced over the past two years.

Funding Options mentions the withdrawing of overdrafts is one of the biggest drivers of the increasing use of alternative finance such as invoice finance, asset finance, bridging loans and peer-to-peer lending or crowdfunding.

The study comes as the government is expected to publicise an increase in the number of so-called ‘enterprise zones’ in England, from 24 to approximately 40, in the Autumn Statement later this month.

The zones are crucial to the government’s Northern Powerhouse initiative where they have received £1.1 billion of investment in the past four years.

The chief executive of Funding Options, Conrad Ford said:

“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.”

The government is planning on launching an alternative finance referral system such that when banks turn down SMEs, they will refer them to the scheme.

“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,” Ford additionally stated.

The Chancellor George Osborne is making a way to re-balance the economy away from its bias towards London and the South-East of England with the Northern Powerhouse scheme.

Economic growth in the North-West of England was found to be 2.6% each year. According to the Royal Bank of Scotland Regional Growth Tracker, growth in the North-East is running at just 2.4% for the second quarter of 2015. While economic growth in London comes in at 3.3%.

Peer to peer lending may provide another finance alternative if Banks continually bully SMEs and larger firms if only to provide a short-term stop gap which can still be a cost effective measure.

Watch this space for the Autumn budget review!