Word on the Street: putting overdrafts into overdrive in Wales

As someone who has worked in the SME finance industry in Wales for almost 20 years, I have never heard so many businesses complain that they can’t get a proper SME overdraft from their bank. Companies that are looking to expand, and perhaps extend their overdraft, are either being turned down or asked to look at alternatives such as invoice financing. Banks seem increasingly unwilling to write business overdrafts in the £50k range that many small and growing companies want. These individual company stories are backed up by the data. Bank of England figures show that SME overdraft balances fell by 40% across the UK between 2011 and 2018. Wales’s own SME overdraft balance has dwindled by approximately £125m since 2012.

I also know from experience that invoice financing, which many are encouraged to look at, isn’t a viable option for every company. The businesses that call me up are searching for the flexibility and headroom that an overdraft can offer, but they are increasingly struggling to find it from traditional providers.

Through GrowthLine, we are able to offer a finance solution that has all the advantages of an overdraft, and in many cases even more flexibility. By calculating a line of credit against assets and WIP, and evolving the limit as the business grows, we can offer something that ideally complements the trajectory of an ambitious company on the expansion path.

The businesses I work with use the facility for a wide range of purposes. For some, it provides working capital headroom for day-to-day needs; others have used it to support specific transactions, including a management buy-in that we recently facilitated for a digital marketing company. Across my customer base, I see the various ways in which working capital flexibility can help businesses from a wide range of sectors to manage short-term needs and plan long-term growth. These are companies in industries from construction to manufacturing, retail and recruitment. It’s a diverse mix that underlines how access to working capital is such a critical need right across the SME sector, in all its many shapes and sizes.

Of course, that’s true nationwide, but it’s an especially pressing issue in Wales. The SME community is a vital contributor to employment and economic activity, but lags other parts of the UK on some key performance indicators. According to the ONS’s 2017 Small Business Survey, Wales has the UK’s lowest proportion of SMEs making a profit (73%), while only 10% are engaged in export activities.

To unlock the growth and export potential of the Welsh economy, we need to address the financing problem. What I see is that there are lots of companies who are looking to expand: construction and development activity is busy, and we hear from plenty of businesses who are looking to complete transactions of various kinds. My sense is that there is pent up growth ambition and investment demand, which can be unlocked in Wales if the supply of SME finance both increases and evolves in line with companies’ needs. These are companies with very individual needs, and a cookie-cutter approach often fails them; by contrast, financing solutions that are bespoke and which can evolve alongside the company as it grows are the ideal.

There is huge potential for growth, innovation and success in Wales, across a diverse spectrum of industries. Better access to finance is key to tapping that potential, and at Growth Street we are proud to be playing our small part in trying to move that forward.

Written on in Business Insights Borrowing
Business Development Manager, Wales & South West