Small Businesses made 741 complaints to the ombudsman over bank loans in the last year

1 September 2015

  • Business overdrafts withdrawn at the rate of £5.7m per day
  • SMEs increasingly look to alternative finance to provide funding

Small businesses made 741 complaints to the Financial Ombudsman Service over bank loans and overdrafts last year as banks continue to pull back on lending to SMEs, says Funding Options, the online business finance supermarket.

Funding Options says that one of the most common reasons small businesses complain to the ombudsman is the withdrawal of overdrafts by banks without warning. Research by Funding Options reveals that small business overdrafts have been withdrawn by banks at the rate of £5.7 million per day since 2011.

These complaints are only the tip of the iceberg, as only the smallest businesses can complain to the ombudsman. Businesses with ten or more employees or with a turnover of more than €2m are not able to make complaints, which could indicate the amount of disputes between businesses and banks is much greater.

Funding Options says that this withdrawal of funding has led to many small businesses looking to alternative finance, although many remain short of information on the options available to them.

Funding Options says that its analysis shows that £76bn of alternative financing is in use by SMEs, now almost half of the amount of bank lending currently used by small businesses. Funding Options research found that there has been a 43% increase in SME alternative finance in the last year alone.

It explains that there are a broad range of alternatives that could provide a more accessible funding solution for small businesses.

Conrad Ford, CEO of Funding Options, says:

“The death of the business overdraft is hitting a lot of SMEs hard, as it has been a mainstay of small businesses finance for 250 years.”
“That’s one of the drivers of alternative finance becoming increasingly mainstream. We are seeing more and more SMEs exploring their alternative finance options after having their overdrafts withdrawn unexpectedly.”
“Options such as invoice financing, non-bank commercial mortgage lending, leasing, crowd funding and peer to peer lending all provide effective funding for small businesses. There are many alternatives out there so every business should be able to find funding that works for them.”

Funding Options says that the British Business Bank’s alternative finance referral scheme, for which its platform was shortlisted in July, will play a critical role in raising awareness of the alternative finance choices available for small businesses.

Says Conrad Ford:

“There is still a knowledge gap among a lot of small businesses over what kind of alternative finance might be best for them. The British Business Bank’s referral scheme could bridge that gap virtually overnight if it is implemented in the right way.”