Overdraft danger for firms

By ANDREW OXLADE, COLUMNIST
Updated:

 

BRITAIN'S small business owners prefer to bankroll expansion with an overdraft rather than other types of borrowing, new research shows.

Nearly three-quarters (72%) of British businesses turn to bank account borrowing, according to a study by business adviser Grant Thornton.

The International Business Owners Survey, which covers 19 countries, found that only South African and Dutch companies were happier to stretch their bank balance. However, only 15% of US firms turned to their overdraft for extra investment.

Grant Thornton said recent falls in interest rates had made overdrafts attractive. But Paul Andrews, client services director of entrepreneurial business services, warned funding might dry up.

'With more and more businesses racking up debt, coupled with the downturn in the economy, banks are becoming increasingly risk averse,' he said. 'Banks are entitled to request repayment of an overdraft on demand and if a business is not in a position to raise the cash quickly then it may find itself on dangerous ground.'

He recommended a loan with an agreed repayment period as a more sensible option. The survey showed that only 46% of UK firms fund expansion by taking out loans with a repayment period of five years or less and just 36% take loans for more than five years.

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