Small businesses made 741 complaints to the Financial Ombudsman Service (FOS) over bank loans and overdrafts in 2014 as banks continued to pull back on lending to SMEs, according to online business finance supermarket Funding Options.
Funding Options said that one of the most common reasons small businesses complain to the ombudsman is the withdrawal of overdrafts by banks without warning. Research by Funding Options revealed that small business overdrafts have been withdrawn by banks at the rate of £5.7m (7.8m) per day since 2011.
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Businesses with ten or more employees or with a turnover of more than 2m are not able to make complaints. According to the company, this could indicate that the amount of disputes between businesses and banks is much greater.
Funding Options said that this withdrawal of funding has led to many small businesses looking to alternative finance, although many remain short of information on the options available to them.
The company’s analysis showed that £76bn of alternative financing is in use by SMEs, almost half of the amount of bank lending currently used by small businesses. Funding Options research found that there has been a 43% increase in SME alternative finance in the last year alone.
Conrad Ford, chief executive officer of Funding Options, said: "The death of the business overdraft is hitting a lot of SMEs hard, as it has been a mainstay of small businesses finance for 250 years.That’s one of the drivers of alternative finance becoming increasingly mainstream. We are seeing more and more SMEs exploring their alternative finance options after having their overdrafts withdrawn unexpectedly."
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By GlobalData"Options such as invoice financing, non-bank commercial mortgage lending, leasing, crowd funding and peer to peer lending all provide effective funding for small businesses. There are many alternatives out there so every business should be able to find funding that works for them."
