Small businesses turn to risky lending

Hilton-Baird Financial Solutions, a finance broker, carried out research that found that 35% of SMEs and limited company contractors have been using credit cards as a means of getting much needed money, whilst 23% have turned to family and friends for loans. 41% of small business owners still prefer to rely on bank overdrafts.

Managing Director, Evette Orams, warned that whilst using credit cards to fund a limited company is a quick fix, they are both costly and inflexible and can lead to more long term risk. However, there are alternative ways to access cash quickly, such as invoice finance or factoring. SMEs need to take a more hands on approach to managing their cash flow and risk management, she added.

The banks made new loans of £529 million in April to small businesses, slightly more than in February but way down on the £678 million lent in March.

There have been increasing calls for the government to ensure SMEs have better access to funding. Small businesses are the lifeblood of our economy and without them there is little hope of a full economic recovery.

Since the budget on Tuesday, there have been concerns raised that the banking levy will hurt lending to SMEs. Some experts would like SME lending excluded from the levy. Instead they think the new levy should target the banking areas that provide no economic benefit.

As well as the concerns surrounding the bank levy, SMEs were hit by the VAT and CGT increases and the reduction in capital allowances when George Osborne delivered his emergency budget.

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