In what won’t come as a huge surprise, banks are once again becoming less friendly towards freelancers, contractors and small businesses. In recent times they have been harder and harder to get loans from and now, according to a new study, there is another issue to deal with. The decrease in overdrafts.
Overdrafts are a useful tool for businesses and many take advantage of them. If there is a sudden unplanned expense, for example, a company can just dip into their overdraft to cover the unexpected cost. It’s a great resource which can often save the day in times of trouble, which is why it is distressing to hear that banks have been cutting them back and in a big way.
According to a recent study 71% of contractors and SMEs have had their overdrafts cut back by the banks, but exactly how important are they to business owners? Well, 89% said they would survive for less than 3 months without one. 82% rely on them for unplanned costs and 67% depend on them to fill ‘cash flow gaps’, which are obviously common with the economy in the state it’s in.
In turn though, the banks do have their reasons. A rather startling 92% of SMEs breach their overdraft limit at least twice a year. A staggering amount, but further proof that these are extremely tough times.
There is an extra problem here too. It isn’t just the overdraft itself being reduced, but an overhaul of the fees and conditions that come with it. Most businesses saw their overdraft fees increase and their terms and conditions changed. Apparently the bank’s solution for businesses going over their overdraft is to take more money and attempt to confuse everyone. Great plan.
All of this is causing uncertainty to business owners. They’re already worrying about keeping themselves going and trying to ride out the recession, but now the banks are putting them on even shakier grounds. 26% of companies say they do not feel they control their finances.
This is clearly a problem that needs to be fixed as soon as possible. The Government has spent a lot of time blustering about how important SMEs are to the country’s recovery. They have announced scheme after scheme aimed at helping startups and entrepreneurs to get off the ground, but this is a problem that they haven’t even addressed.
If the Government is serious about supporting freelancers, contractors and small companies then they need to find a solution to this dilemma. Overdrafts, at this time, are essential.
Photo by Michael Zimmer