Overdrafts – the crushing cost of cash

It’s a sign of the times: at home and in the office it is costing more money than ever to sort out your finances and overdrafts seem to be the most expensive way to get ‘help’ from your bank.

A YouGov survey shows every third small business is resorting to overdrafts, rather than longer term bank business loans. Down the even more expensive credit card route, a million householders have paid their mortgage or rent by credit card in the past year.

YouGov surveyed 540 SMEs in the UK for CreditPal, and 30% had applied for a bank overdraft or an overdraft extension in the past two years, despite business loans being considerably cheaper. Only 21% of SMEs applied for a business loan.

Companies with a turnover of between £250,000 and £500,000 are most likely seek an overdraft.

Overdrafts are expensive. The British Bankers’ Association says SME overdrafts totalled more than 9 billion pounds at end 2009. Unofficial estimates say that cost the SMEs more than 2 billion in interest.

A YouGov survey for charity Shelter found more than a million householders, desperate to keep the roof over their heads, paid their rent or mortgage by credit card in 2009.

Paradoxically, while borrowing on credit cards costs top whack, it was the poorest who used this route most (8% of those in working class ‘professions’ – the C2DE social grouping). But the middle/upper class (ABC1 category) are also feeling the pinch, with 4% of these respondents paying this way. One in 12 Londoners paid these bills by plastic. Shelter warns that defaulting on credit card debt risks you losing your home.

But to come back to small business. Have you found any good ways to get the cheapest overdraft or business loan, or bad experiences? No need for real names, you can keep it anonymous. Do tell us so others can know.

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