Small businesses in the North hit hardest by overdraft cuts

"Northern Powerhouse" is growing much slower than London economy with banks more reluctant to fund small firms in North West and North East

Small and medium-sized enterprises in the North are facing bigger bank overdraft cuts than small businesses in London, new research from Funding Options has revealed.

The survey of 250 business owners found that 55% of northern businesses have had their overdrafts reduced or withdrawn entirely during that last two years, compared to just 25% of small firms in the capital.

Economic growth in the region is also lagging at 2.6% per year in the North West and 2.4% in the North East, while London steams ahead at 3.3% per year. The figures reveal that the government’s “Northern Powerhouse” has been disproportionately affected by the £8.4bn banks have cut from overdrafts since 2011.

The struggle to access traditional finance has caused many small businesses to turn to alternative funding such as invoice and asset finance, with the government’s alternative finance referral scheme likely to drive this further.

Under the scheme, scheduled to launch in early 2016, banks will direct small businesses towards alternative options if they turn them down for funding.

Conrad Ford, Funding Options CEO, commented:

“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, and while the whole country has been affected, the North has been hit a lot harder than London.

“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. We’re now approaching the end of the business overdraft as a tool for working capital.”

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