Why won’t the bank increase the overdraft?

There are many reasons why banks reach their maximum lending limits. Sometimes it seems totally illogical to the company trying to raise finance. Maybe the company secures a big order which needs more working capital – it’s profitable – but the bank is reluctant to assist. This can be due the banks’ own criteria for lending having been reached – and they can go no further. Some would say that gone are the days when bank managers had sufficient discretionary limits and could lend based on their knowledge of the business or its’ directors. Reports have to be written, boxes have to be ticked, ratios of the business must conform! Yet these very banks acting as business gods who refuse to help under-capitalised businesses were the same banks that were themselves under-capitalised and needed to be baled out by the government using public money which has been provided by the same people and companies the banks themselves refused to assist!

One of the factors used by the banks in determining the overdraft limit is the value of debtors (the amounts due from customers).

Typically banks will allow 20% of the debtor value.

Many companies now use a method of obtaining finance by arranging another overdraft with a different bank which allows borrowing up to 80% of the value of debtors.

Each bank has sister companies within their group to offer this as well – but beware – they will only offer their own company.

We are not a bank – we are accountants who have contacts with many such companies who offer many varied solutions to most financial requirements.

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