- 04 Mar
Overdrafts being converted to loans?
The British Bankers' Association recently released figures showing that the amount lent to small businesses through overdraft fell at the end of 2008 by £457 million in the same period the amount lent on term loans (a loan with a fixed period and potentially more security and fees) rose by £220 million.
These figures suggest two things. Firstly that there may have been a movement in bank lending from overdraft to term loan. This could potentially increase the security of the bank's position, allowing them to request additional security and it also allows them to charge additional fees related to the loan.
The second, and even more worrying trend is that the increase in term loan lending is only approximately half the fall in overdraft lending which means that many businesses will be a position of being unable to adequately fund their working capital requirements due to this net reduction.