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Small businesses ‘unsupported’ by banks PDF Print E-mail
Monday, 22 August 2016
Over a quarter of small businesses (26%) do not feel supported by their banks, according to a survey of 500 SMEs conducted by YouGov. This feeling is most pronounced in the category of businesses turning over less than £1million, in which 30% claim to feel ‘unsupported’.

The research, commissioned by P2P finance specialist Nucleus Commercial Finance, also revealed small and medium sized companies are in the dark regarding the notice periods on their business overdrafts. Forty percent of SMEs claimed their banks had to give them at least a week’s notice or didn’t actually know what the notice period was. The most popular overdraft notice period answers were three months or more than three months, with 14% of small businesses and 19% of medium sized businesses claiming their banks were obliged to give them at least three months’ notice.

These results were not unexpected said Chirag Shah, CEO of Nucleus Commercial Finance: “Unfortunately for SMEs, banks don’t need to give them any notice at all before removing their overdrafts – but they often don’t make this clear. Businesses work this source of unsecured funding into their budgets and rely on their overdrafts to plug working capital gaps on a month-by-month basis.

“The fact that a three-month overdraft notice period was the most popular answer suggests many SMEs have a shock coming further down the road when this lifeline disappears.”

Shah continued: “Banks are simply reluctant to make this type of unsecured lending available. Basel III required them to acquire more capital to sustain the same level of risk, and SMEs are often their least profitable and therefore lowest priority business customers.

“That small businesses don’t feel supported isn’t a shock: according to figures from the Bank of England, SME lending via overdrafts alone has fallen almost £8.5billion in four years. In fact, the latest BBA figures show in Q1 this year, banks approved £6.1bn of new SME loan and overdraft facilities. This was 18% lower than in the same quarter last year. It’s a worrying trend for SMEs.”

The Nucleus survey also revealed that almost a third (31%) of SMEs felt Brexit will make it harder for them to secure funding. Shah continues: “With the current financial uncertainty it’s not surprising SMEs felt business funding might be harder to come by.

“Banks were major beneficiaries of the UK’s EU membership. Our withdrawal will potentially make it harder than ever for SMEs to secure finance from them – all this at a time when many SMEs will need liquidity to ensure they stay afloat. It’s more important than ever that they assess all their finance options to ensure the future success of their businesses.”

All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 633 senior decision makers from SMEs. The figures have been weighted and are representative of SME company size.

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