SMBs hit by spike in overdraft rates

Average interest rates paid by businesses on overdrafts now close to three-year high, according to Syscap

Small businesses are coughing up more interest on their overdrafts than at any time since February 2009, Syscap has asserted.

According to the independent finance provider, the average interest rates paid by businesses on their overdrafts hit 3.46 per cent in September – the highest figure for almost three years.

Syscap said smaller firms are likely to be paying up to twice that rate and may also face higher additional charges, such as arrangement and annual fees.

Philip White, chief executive of Syscap, said the spike is prompting small businesses to look into leasing and other forms of asset finance.

He claimed asset financing is consequently playing a growing role in funding businesses' expansion. Some £20.9bn of asset finance was supplied in the 12 months ending 30 September 2011, up eight per cent on the previous year, while bank lending to businesses has stagnated or fallen, he added.

"The eurozone crisis has sent average business overdraft rates shooting up to their highest level in nearly three years, despite stability in the central bank rate," said White.

"This is causing real pain for small businesses, whose overdraft rates are always much higher than the overall average, and who can be paying up to three per cent on top of that in additional charges. Unfortunately, with banks still failing to make other types of loan more widely available, an expensive overdraft is frequently the only form of business borrowing available from high street lenders."