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SMEs relying on overdrafts and credit cards for borrowing needs rises

A rising number of UK SMEs are relying on overdraft and credit cards for their borrowing needs, according to new research by Recognise Bank.

The analysis, which surveyed 500 senior decision makers within British SMEs in August, found that some 78% of UK SMEs are confident that their business will experience a boost in trade over the next three months following the easing of restrictions.

It revealed that companies are looking at their funding options as they invest for growth in their businesses over the coming months.

In terms of business investment priorities over the next three-month period, Recognise Bank found:

24% of SMEs said they plan to purchase new equipment (including IT)
• 24% plan to purchase protective equipment for staff
• 21% of all SMEs said they want to buy new stock
• 19% would like to add further products and services
• 18% of firms intend to buy protective measures for customers
• 17% of SMEs aim to invest in e-commerce technology to trade online
• 17% of firms are looking to recruit more staff

“It’s positive to see that the vast majority of SMEs are confident they can continue to boost their business activity now that Covid restrictions are being eased, because it has undoubtedly been a tough year and a half for many firms,” said Angela Norman, head of corporate development at Recognise Bank.

“That positivity is manifesting itself in terms of strong growth plans among SMEs.”

When it comes to funding their business investment plans, the number of companies turning to their bank for a loan increased to 16%, compared to 15% in May when the research was last carried out.

The bank stated that 15% of SMEs plan to use cash from their business surplus, a fall from 20% in May.

SMEs are now also less likely to fund their activities using government loan schemes, dropping to 11% of those surveyed, compared to 17% in May.

However, the use of an overdraft by SMEs to fund investment rose to 12%, compared to 7% in May, while the use of credit cards also increased to 11%.

Borrowing from an alternative lender, rather than their own bank, was the preferred choice for 6% of SMEs surveyed, pointing to a sense of dissatisfaction among a significant number of respondents.

When asked about the support they receive from their own business bank for their borrowing needs, one-third (33%) of SMEs said their bank was always able to support them, while one-third (33%) said they were only able to support them sometimes.

Some 14% of SMEs said that their main bank was never able to provide the support they required for their borrowing needs.

Angela added: “The number of firms turning to overdrafts and credit cards to fund this business investment is worrying, as this route is likely to be much more expensive than other forms of borrowing.

“The fact that 14% of SMEs feel their main business bank cannot support their borrowing needs suggests there are a lot of firms out there who need advisers to help them find a better funding solution for their business.”

Recognise Bank provides unregulated lending to UK SMEs, including commercial mortgages, bridging, private practice, and working capital loans, with professional BTL mortgages to follow soon.

The lender aims to provide more than £1.5bn of business lending over the next five years, with plans to launch both business and personal savings accounts later this year.

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