Small firms resorting to use of credit cards

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SMALL businesses are becoming increasingly reliant on credit cards for their short-term survival, according to new research.

The BDRC Finance Monitor for SME lending found there was a continued rise in the use of credit cards during the third quarter of the year, from 15 per cent in the fourth quarter of 2012 to 20 per cent in the third quarter of this year.

This is in contrast to overdraft use for the same period, which has decreased from 20 per cent to 16 per cent despite falls in associated costs.

The Forum of Private Business said confidence levels suggest that businesses continue to see the trading environment as “extremely challenging” and confidence in the banking industry remains an obstacle to supporting economic growth.

Confidence in business growth over the next 12 months has dropped to 47 per cent, from a high of 51 per cent, with 36 per cent of businesses reporting growth over the last 12 months compared to 44 per cent in the previous quarter.

The report also highlighted a fall in the proportion of businesses injecting personal funds, from 38 per cent from 42 per cent in the last quarter, as businesses have reverted to using their profits instead of personal assets or bank funding to finance future growth.

Use of alternative methods of finance has also dropped marginally from a high point of 21 per cent last quarter.

Phil Orford MBE, chief executive of the Forum of Private Business, said: “This latest data further pinpoints the urgent need for the banks to convince the small business community that they are here to support businesses looking to grow and employ, which has not been helped by recent press coverage.

“Without clear support and positive action from the banks, this could remain a continuing obstacle and threat to recovery in 2014.”

He added: “When it comes to business finance, it is vital that banks take further steps to be more proactive in providing the liquidity businesses need rather than seeing further increases in the use of credit card finance.”