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Overdrafts for small firms crucial
Written by Editor
Friday, 16 January 2009 10:17
ICAEW says overdrafts are critical for many SMEs to manage cashflow as Lib Dems urge for more force to be exerted on banks.
Economy News, Jan 16th:
New research conducted among ICAEW (Institute of Chartered Accountants in England and Wales) members shows that overdrafts are the most important form of finance for SMEs, with 54% of SMEs surveyed having an overdraft facility compared to 37% having a term loan.
Overdrafts are critical for many SMEs to manage cashflow.
Around a quarter of SMEs have been contacted by their overdraft provider in the last six months to have the facility renegotiated or cancelled. This compares to only 12% of large businesses and 9% of very large firms.
The Enterprise Finance Guarantee is a huge expansion of the Small Firms Loan Guarantee scheme, which only covered about 3,000 firms and was only about loans. While the new guarantee will also cover overdrafts, it is yet to be made clear how this will work.
Clive Lewis, ICAEW Head of SME issues, said:
“We welcome the announcement of the Enterprise Finance Guarantee (EFG) but in practical terms it represents some challenges.
“The Small Firms Loan Guarantee it replaces was much more limited in scope and the banks were criticized because it was not widely offered. They will have to move up several gears for EFG to have the intended effect.”
Over 9 out of 10 SMEs with overdrafts are expecting to discuss terms of their facility by the end of 2009 while less than 20% of SMEs’ term loans are up for renewal in 2009.
Force needed
The SME funding crisis can only be solved by forcing state banks to lend says Lib Dems.
The leader of the Liberal Democrat says the Government should get tough on taxpayer-backed banks refusing to lend.
The lack of credit and overdraft facilities to the SME sector has been the number one issue facing SME owners and commentators that have been in contact with SME web in January.
Speaking at Prime Minister's Questions, Nick Clegg said the Government should be "playing hardball" with banks refusing to lend.
He urged the Prime Minister not to risk adding a further £10 billion of taxpayers' funds to the previous £37 billion stimulus. Suggesting that telling the banks to hold on to capital and lend was counter-productive, Nick repeated his call for a state bank to lend directly to British businesses.
