Regardless of the industry you operate in, a business overdraft acts as a safety net incase of any unforeseen expenses or managing seasonal fluctuations in trade. You may also want to take advantage of commercial opportunities that arise at short notice, so having a sufficient business overdraft ready at your disposal makes a huge difference. They’re often considered easy to set up and quick to arrange, but is that really the case?
Here’s a few pointers you need to consider for a well-rounded concept of business overdrafts.
1. Traditional lenders can withdraw your overdraft at short notice
Did you know that your bank has the right to ask for repayment of your overdraft at any time? Or they can reduce it at short notice? The last 10 years has seen the volume of SME overdrafts dropping dramatically despite the growing number of SMEs, suggesting that many small businesses that once relied on an overdraft are no longer able to. This is worrying for SMEs who rely on their overdrafts to make ends meet and do not have the ability to pay it back at short notice. This is fatal for many businesses so always make sure you check your terms and conditions before entering into an agreement that could leave you out of pocket unexpectedly.
2. Bridging lack of awareness among decision makers
Smaller SMEs may not yet have significant assets within the business, leaving them with fewer options and potentially more reliant on personal savings. However, according to a study by Close Brothers, one in eight larger-medium SMEs, which in many cases have those assets to leverage, admitted to having used personal savings in order to grow their business. This implies a worrying behaviour pattern; the habits which began as a startup can continue even in companies with a workforce of over 100. On a day to day basis, the widespread use of credit
cards highlights a desire for quick access to finance. In 2019, 47% of SMEs have used a personal credit card for their business and 19% do so regularly.
The barriers many businesses face accessing finance implies that high street lenders fail to understand and match SMEs’ individual needs. This is particularly serious at a stage when SMEs are looking to grow and need support around financial planning and financial products.
The good news is, commercial lending continues to evolve as alternative non-bank funders address gaps in the market for flexible business overdraft solutions in support of SMEs. For instance, there’s going to be times when businesses quickly need to access more funding to fulfill new orders or meet day-to-day commitments. By the same token, having an overdraft in place offers business owners the peace of mind in case they need to access money at short notice, which is a pragmatic approach.
3. Creative business overdrafts
Lack of suitable advice is resulting in many SMEs utilising the wrong financial products for their circumstances as well as being turned down for finance from traditional lenders. SMEs are complex, diverse and cannot be bundled together in one group. They face different challenges at different stages of their lifecycle, and it is clear they need more tailored support from the lending industry and government bodies as they move through different stages of growth.
FundingSmiths can help secure business overdrafts by creatively leveraging assets in your balance sheet in several ways including:
- existing & future stock value
- plants, machinery, equipment
- current sales ledger / debtor book value
Would you like to know more?
Shoots of spring and confidence are emerging as we move further into 2022, but growth plans in this environment need to remain flexible. Think of us as your strategic funding manager that you can call upon to help execute your next commercial milestone. If you would like to discuss your commercial plans in more detail, we’d love to hear from you. Please email email@example.com or let’s talk to discuss further.