The British Bankers Association has revealed that small firms in the UK increased their total overdraft borrowing by ten per cent in 2005.
Overdrafts account for a total business debt of £8.8 billion in Britain and the business editor of Moneyfacts.co.uk, Lee Tillcock, says that unauthorized borrowing through overdrafts can mean a large bill eating into profit margins or adding to overheads.
"There is a wide range of fees and charges associated with an unauthorised overdraft on a business current account," Mr Tillcock noted.
"Charges can range from £4 to £30 per day or up to £30 per debit, a potentially costly mistake for any business to make.
"One reason likely to take an SME (small or medium-sized enterprise) into its overdraft facility, authorised or unauthorised, would be as a consequence of bad debt or late payment from their debtor's book.
"According to a recent Credit Management Research Centre report, UK firms are writing off tens of thousands of pounds every year in bad debt with SMEs writing off, on average, £14,000 per annum."
Several other borrowing options are available to SMEs in the UK, including taking out business loans. Many other options could work out cheaper than an overdraft, especially if that overdraft is not authorized beforehand.To read more about business borrowing through loans, click here.
© Adfero Ltd