Short-notice overdraft loss could push firms into administration advice

Published on June 13, 2014 by Crawfords Accounting

A ‘hidden credit crunch’ could be increasing the need for administration advice for many businesses – but not because of a reduction in the availability of business bank loans.

Instead, it is the short-notice reduction and removal of business overdrafts that is raising the risk level for firms throughout the UK.

According to business lending specialist LDF, there has been a 23% reduction in business overdrafts in the past two years, while traditional bank business loans have fallen by 9% in the same period.

Peter Alderson, managing director of LDF, said: “Overdrafts have traditionally been one of the most commonly used financial tools for small businesses, but it’s becoming increasingly difficult for SMEs to rely on them to adequately manage their cashflow.”

This could put many so-called ‘zombie businesses’ on the very cusp of administration advice; these are firms who are on the edge of being able to service their outgoings on a monthly basis.

Zombie businesses are not expected to be able to take any additional financial burden – and the removal of an overdraft could prove to be the pivotal moment for many.

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