Don’t be surprised that if over the next few months banks start to pull in business overdrafts. There is a very good reason for this and one they will probably never admit. One thing that has come out of the credit crunch is that banks are under capitalised which in turn affects their credit ratings and the cost they borrow money which ultimately affects the rates to the average punter.
When a bank lends money against an overdraft facility it must have far more cash in reserves than any other finance facility. Therefore the more exposure it has against overdrafts the less cash it needs in reserve and as such the better it’s credit rating will be. Therefore if the banks are to improve they must improve their credit rating and one way of doing this is to reduce customers business overdrafts. This has been going on already however news on the street that the banks are up for another tidying exercise.
This will ultimately leave customers in the lurch with possibly no bank based lending alternative. The good news is that there many alternatives to the high street banks. Cash flow finance such as factoring and invoice discounting are credible alternatives. Asset refinance and EFG lending and trade and stocking facilities are also options.
Tags: business finance, cashflow finance
