Small businesses too reliant on overdrafts

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While the recession has made finance tighter for small businesses over the last few years, overdraft facilities are worryingly over-relied upon, according to ABN Amro Commercial Finance

According to figures from the asset-based lender, 89% of 250 businesses surveyed said they would be unable to survive for more than three months without a facility.

A further 71% of small businesses have had their overdraft limits reduced by their finance providers, while more than two-thirds use it to cover up gaps in their cashflow.  

AccountingWEB explores ABN Amro's findings, what kinds of business it is most important for and views from the community. 

Managing director of ABN Amro Peter Ewen was worried about the statistics. 

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About Rachael Power

Your friendly, neighbourhood community editor. 

Twitter: @rachpower10 


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08th Nov 2012 11:17

Our bank cut our overdraft to £15,000 and for the first time in 90 years trading, we couldn't make payroll yesterday.  We found a way but it was a sobering experience and after the news of a local firm of 100 years going into administration this week, stress levels were at an all time high this week.


We are losing a member of staff next month which is a small saving but it is hard to see a light at the end of the tunnel even though we are busy.  The same old story seems to circulate that we are all busy but not making any money.


Much of our work is tied up with probate and matrimonial work so if the instructing solicitor isn't in funds, we don't get paid.  I have good credit controls in place for other fee earning work but the legal work is about 50% so we are reliant on it and have long term relationships with the local solicitors.  Surely solicitors are under the same pressures.


Any thoughts?  To top it all yesterday, our printer died on us yesterday which is the second one in a month!  Never rains but pours!


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08th Nov 2012 12:02

Restructure your business

Cash flow based on your post is a nightmare even when banks are prepared to lend.

I would have a proper think about where your business is going. The bank's next steps will be to replace the overdraft with a loan which might even have a PG attached.

Look at the type of work your business does and focus on that which has better cashflows.

Lack of profit won't kill you, lack of cash will!


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09th Nov 2012 10:20

Years ago

Proper bank managers would lend business as much as they required with a review of figures and a meeting every year. The banks postion was that business need overdrafts for day to day running and expansion. The bank, in return, made "loadsamoney". Then came the big recession and all hell let loose. Banks panicked and made decisions that are still hurting business today.

In fact I had many conversations with bank managers to the effect that they wanted business to borrow money. Of course, just like HMRC, when these big goups lose money through their own greed and stupidity who do they turn to to re-coup?

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By iainrb
12th Nov 2012 15:21

Why Overdrafts?

When I worked in practice, more than a few business clients seemed to suffer, and accept, large permanent overdrafts.  I don't know what irritated me more - clients who were too daft to realise the premium cost of this form of financing or the banks involved who seemed to get the most benefit out of the arrangements. 

Banks may be ruthless and greedy, but the problems that these clients suffered from were, in the main, of their own making.  They just could not manage the financial side of their business properly, and much of the time seemed content to live in this unhappy equilibrium when they, as owner-managers, were taking home less than their lenders.   

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16th Nov 2012 10:49

Numbers, Numbers, Numbers...

So 11% of SME's could survive for longer than 3 months without a business overdraft. It tells us two things. 

1. The state of the economy isn't great that businesses are so heavily reliant on finance.

2. Nothing else.

I know insolvency companies that are heavily reliant on their overdraft. The business may still be solvent but struggle to get back out of their debt. 

Of course when you lose your business overdraft it would be a problem as it would then require a substantial increase in revenue to balance the books.

On a side note, banks are greedy, but I think we all knew that lol.


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