Small Business Loans to Become More Popular as Overdrafts Decline
While it is, of course, good news that the economy is continuing to improve – and at a somewhat unprecedented rate, too – there is one issue: it’s lulling us into a false sense of security. As salaries are starting to rise, and as businesses are once again starting to make more investments, many small businesses are under the assumption that everything will soon be back to normal, and that they’ll continue to have access to easy-to-secure funding from major high street banking establishments.
However, we can clearly see that this is not the case. Prior to the financial crisis, a small business may have dipped into their overdraft facility in order to make a fast purchase. A short term solution to a lack of financial resources and one that was certainly a lot quicker and simpler than applying for a traditional small business loan. Today, however, an increasing number of small businesses are finding that the overdraft facilities they have with their high street bank are being reduced, or even removed altogether.
It’s reported that 30 percent of SMEs have had their overdraft limit slashed within the past two years alone, and that 17 percent have had the service removed entirely. Banks are, it seems, less confident about what the future holds, and are doing whatever it takes to minimise the risk. This includes restricting lending options for small businesses who require financial assistance to grow. According to reports, the small business overdraft cull trend is showing no signs of slowing down any time soon.
So what are the options for businesses who can no longer rely upon overdraft facilities?
Traditional Small Business Loans – the most obvious solution is a standard small business loan from a bank, but even with the growing economy, banks are still very wary about lending, particularly to customers deemed to be high risk, such as small businesses and start ups.
Business Credit Cards – business credit cards are worth considering, but they should only be used as a short term solution. Interest rates tend to vary between 6 percent and 20 percent, which could see your business struggling to repay high fees further down the road.
Alternative Small Business Loans – Perhaps the lowest risk option for businesses today is an alternative small business loan. More informal than a traditional small business loan, options include invoice trading, crowdfunding, asset-based lending, pension-led funding, and so on.
If your business is one of the 5.2 million small and midmarket companies that is expected to be affected by many banks’ decisions to cease offering overdraft facilities, then we’re here to help. At compareyourbusinesscosts, we’ll help you find the right small business loan for you.