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Overdrafts: the credit product every growing business needs, but can’t have – until now

Date 28th July 2016 //
Author James Sherwin-Smith, CEO, Growth Street
Computer, Electronics, Laptop, Pc
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The latest quarterly statistical release from the BBA spells out more bad news for SMEs hoping to open an overdraft with their bank – the number of approved facilities continues to fall. Growth Street is aiming to reverse that trend, by providing growing, profitable businesses with an overdraft alternative

Managing cash flow as a business owner is a difficult task. Income is unpredictable; will buyers pay as expected? Will demand be up or down this month? Expenditure however is sadly regular; rent, salaries and rates payments have to be made to keep the business ticking over.

Cash shortages put even promising businesses under stress, and in some cases can even lead to business failure. Business owners know this, and so typically horde cash throughout most of the year to cover difficult trading periods. But there is an opportunity cost to hoarding cash – it isn’t being reinvested in the business, to buy a new machine or hire a new person. In short, holding excess cash in the bank account limits the business’ growth potential.

Revolving credit facilities (RCFs) such as overdrafts are the best solution for managing cash flow. Once the facility is opened, companies are assigned a credit limit, and can then borrow and repay at will against that limit – only paying for what they use. It’s an easy to use, easy to understand product that strips borrowing back to basics – the cost is just a function of how much, for how long, and at what interest rate.

Which is why the latest statistics from the British Banker’s Association (BBA) are disheartening. The BBA have been tracking the number of approved business overdraft facilities on a monthly basis since January 2012. While there is some annual seasonality, the trend is clear – on a rolling 12 month basis the number of overdrafts opened by smaller businesses has consistently fallen, from just over 226K to less than 125K per annum in less than three years – a 45% drop.

Growth Street is aiming to reverse that trend, by providing growing, profitable businesses with an overdraft alternative. This unique offering provides our customers with a limit of between £50,000 and £150,000, with interest only charged for the days it is borrowed on drawn funds at annualised equivalent rates between 8% and 12% (monthly equivalent rates of 0.6% to 1.0%). This type of flexible finance has been – and remains - critical to helping UK businesses. To learn more, why not check out our recent customer stories on our website.

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