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UK Finance: Small business overdraft approvals in Q3 more than double that of last year

ended 12. December 2024

New data published by trade body, UK Finance, this morning has revealed a surge in overdraft approvals to small businesses during the third quarter of the year, to double that of the same quarter in 2023. Overdraft approval volumes were at the highest level since 2020 Q2 when the pandemic was in full swing. Full report >> here <<.  Newspage asked experts what they think has caused the surge in overdraft approvals. Their views will appear below until 11:00.

7 responses from the Newspage community

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Emma JonesVerified
Managing Director at Whenthebanksaysno.co.uk
If you're a small business and you take out or extend an overdraft it's often driven by cash flow issues, either current or expected, or as a bridge to cover a dip in revenues. A significant percentage of the UK's small businesses are still in a difficult place following Covid, double digit inflation and interest rates being much higher than what they were. The language emerging from the Government ahead of the Budget is also likely to have triggered businesses to pre-emptively hedge themselves financially and give themselves a little wriggle room to survive. The economy is on a knife edge and this data suggests that many businesses are, too.
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Rakesh DuaVerified
CEO at DUA Accountancy & Business Consultancy
It's no surprise that there has been a sharp increase in overdrafts given the state of the economy and the struggles small businesses are facing. When you speak to business owners, they were already struggling and having to balance "more with less" before the Budget, so these figures are likely to get worse following it. Alongside fiscal pressures, businesses are also faced with cashflow issues due to poor customer payments and being used as a bank by larger companies. If a business has assets or is established, then taking out an overdraft as a working capital measure to "fill the gap" may be sensible. However, if the overdraft is simply plugging holes and that hole becomes too large then firms may be swallowed into a bigger debt issue. Banks could then be tough and force firms into expensive mid to long term debt. As a rule of thumb, your overdraft should be no more than one months' turnover.
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Justin MoyVerified
Managing Director at EHF Mortgages
For some time banks were reluctant to approve additional overdraft facilities if a company had a Bounce Back Loan, but that is less of a concern now as many have been paid down significantly. This data reflects a shift towards businesses looking for that bit of extra flexibility in what are highly uncertain times. Many lenders have also adopted more online lending decisions, without the need for a manager to be involved in the decision-making process. Offering overdrafts and loans via online banking and banking apps is more convenient for busy business owners and more in tune with how the company is performing.
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Riz MalikVerified
Independent Financial Adviser at R3 Wealth
Small businesses are forced to extend their overdraft facilities to keep afloat as cashflow becomes an even greater issue for many businesses around the country. Their hopes for economic recovery rely on No Idea Keir and Rachel ‘I don’t know where I worked‘ Reeves but unfortunately they will be sorely disappointed. This government is clearly out of their depth when it comes to how to stimulate economic growth.
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Michelle LawsonVerified
Director at Lawson Financial
These figures are especially ominous given that they emerged before the Budget. I imagine overdraft approvals will increase further during the fourth quarter as small businesses struggle to keep themselves afloat and their employees in work following the Reeves raid on tax affecting business finances across the board.
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Darryl DhofferVerified
Founder at The Mortgage Geezer
This data suggests that small businesses in the UK are facing increasing financial pressure. The surge in overdraft approvals, particularly compared to the same period last year and the peak during the pandemic, indicates that many businesses are struggling to manage their cash flow. This could be due to a number of factors, including rising costs, economic uncertainty, and reduced consumer spending. Overdrafts are a good barometer of the economy and right now the number being taken out suggests the economy is not in great shape.
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Ben PerksVerified
Managing Director at Orchard Financial Advisers
Small businesses are feeling the pinch and leaning on overdrafts to get them through the leaner months. This isn’t surprising given the state of the economy and rising overheads. It also correlates with the rising insolvency figures we’ve seen over the past few years. It is tough out there.