UK Commercial finance group LDF has described a 23% fall in the value of overdrafts drawn by SMEs from £18.2bn for the twelve months to March 2012 to £14.1bn for the 12 months to March 2014 as a "hidden credit crunch."
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."
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In the same period, SME bank loans fell 9% to £170bn, meaning since March 2012 bank lending to SMEs has fallen over £20bn.
Speaking to Leasing Life, Alderson said this fall was "bound" to have a knock on affect on the asset finance industry, adding "whether it’s a professional practise looking to pay VAT bills, or a small manufacturer looking to buy a piece of machinery, they’ve got to find another source of capital."
Alderson said alternative sources of funding had the potential capacity to make up the shortfall, but added "there is an awful lot of working capital needed."
He also warned "We still come across lots of clients who think their bank is their only potential source of finance."
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