Frosty financial climate results in overdraft shrinkage for UK freelancers

Money, News

In the current age of austerity, with cuts happening left, right and centre, freelancers and small businesses  have arguably been one of amongst the biggest victims of the Government and private sector cutbacks. Despite encouraging signs of slight economic growth the outlook is still bleak - particularly where the banks are concerned.

According to a new study by ABN AMRO Commercial Finance small businesses are now feeling the pinch on their overdraft limits, as banks tighten the purse strings on what often proves a much-needed money cushion during times of financial strife.

Approximately three quarters (71%) of the businesses that participated in the study said that they had seen their overdrafts limit reduced by finance providers, with almost half (48%) suggesting that they relied heavily on this resource to keep their business afloat. That’s a combination that doesn’t make pleasant reading, whatever way you look at it.

To further compound the doom and gloom, 89% of the small businesses questions suggested they would survive for less than 3 months without their overdraft, with 82% relying on them to cover any unexpected costs.

Two thirds (67%) depended on them to cover ‘cash flow gaps’ whilst a staggering 92% stated that they breached their agreed overdraft limit at least twice a year. On average, those that had breached it admitted to having spent 20% of the past year in excess of their limit. In short, overdrafts look pretty important to the vitality of small business.

The consensus appears to be that the banks are reducing their lending to freelancers and small business, and have been for some time. These stats certainly suggest so, despite the British Bankers’ Association claiming there is a lack of demand for finance from small business.

If you’ll pardon the pun, something just doesn’t add up.

Photo by Andrew Dunn