Small businesses face £15.9 billion overdraft debt

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Small businesses in the UK owe £15.9 billion worth of debt to overdrafts, according to new figures.

A report, by GMAC Commercial Finance, reveals that 20 per cent of small businesses have overdrafts reaching over £20,000, many paying high interest rates that are damaging their bottom line. Many entrepreneurs can feel forced into opening hefty overdrafts as a means of acquiring start-up capital, with many unaware of other credit options, such as seeking help from venture capitalists, invoice financing or applying for a government grant.

With small to medium sized enterprises representing 99.8 per cent of the UK’s business community, bosses will be urging Chancellor Gordon Brown to address growing financial burdens, such as increasing business rates, if they are to adopt successful debt management strategies.

Clive Naylor, area manager for GMAC invoice finance, said: “"An overdraft can be an expensive way of funding debt. For example, an average business overdraft APR of 10 per cent would mean that SMEs in the UK are paying almost £1.6 billion just in interest on overdrafts each year.

“This works out as about £2,000 per year for a company with an overdraft of £20,000. This clearly has a huge impact on the bottom line.”