Is it over and out for the overdraft?

Is it over and out for the overdraft?

Overdrafts being removed or reduced is something that is affecting more and more businesses in the UK. Not only can this be frustrating and restrictive, it can have a massive effect on the stability of a business and its ability to grow.

But what if there was an alternative that was flexible, adaptable and making use of something your business already has?

The latest stats from the Bank of England revealed that lending by the largest UK banks fell by £536m from December to January and the Asset Based Finance Association (ABFA) has reported that in 2016 the amount of outstanding bank overdrafts of SMEs decreased by 2%.

But, results from a recent survey of banks and building society lenders stated that there’s been no change in the level of demand for lending from small businesses in the last quarter.

An increasing number of small and medium sized businesses are becoming aware and taking advantage of the options that asset finance can give their businesses.

Yes, the traditional forms of lending for businesses are useful, but it’s certainly not the only option out there. Yet, according to figures from the Treasury, last year 71% of businesses looking for finance, only requested it from one lender. Just one!

Also, it’s worth considering that of the 324,000 SMEs that applied for a loan or overdraft in 2016, over a quarter (26%) were declined by their bank.

However, instead of turning to an overdraft to free up some working capital, or to take advantage of a situation that’s going to enable your business to grow, your business might already have the means necessary. Have you considered using the equipment your business already has?

Asset finance allows a business to unlock the value of existing assets (whether this be machinery, vehicles or something else) to release capital. Unlike an overdraft, you’ll have the certainty of knowing that the facility can’t be removed or reduced at a moment’s notice. Other advantages include the speed in which it can be turned around and the way in which arrangements can be adapted to fit the needs of your business.

Answering a call for help from a business that had been given just five days to repay its overdraft…

The call came from a broker whose client owned a haulage business – their overdraft had been revoked by the bank and they’d been given less than a week to pay it back.

  • To raise the funds necessary, we looked at the assets (the haulage) that the company owned.
  • An onsite asset inspection was completed the day after the proposal was received.
  • Documents were submitted the following day to unlock the necessary capital from 13 trucks.
  • The case was underwritten (by people, not computers) and paid out within 24 hours.
  • The £150,000 overdraft was repaid before the day it was due to be revoked.

Asset finance: providing adaptable and flexible alternative finance solutions for SMEs.

It’s fantastic that more and more businesses are becoming aware of the alternative financing options that are available, but many more aren’t being able to operate to their full potential because they’re not aware of the alternatives.

Businesses up and down the country are being stunted, by thinking they’ve not got the funds available to allow them to buy a new piece of equipment, invest in a new property or employ more staff because their bank has said no. But their business might already have the assets which could enable them to do this (through asset refinance).

Or specifically in the case of needing new equipment – asset finance can provide the means to get that new equipment (via a lease or hire purchase), without needing to find the funds to pay for it all upfront. Instead, the purchase is funded and the agreed amount is paid back over the term of the arrangement; helping balance sheets, budgets and there could be tax benefits too.


For more information, or to apply for a free consultation to see whether asset finance could help your business, ask your broker or financial adviser to refer you to Praetura Asset Finance today.

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