Twice as many small and medium sized enterprises (SMEs) in the North of England have had their overdraft facilities axed as those in the London, according to research from business financial comparison site Funding Options.
In the past two years 55 per cent of businesses in the North were found to have had their overdrafts cut, compared to just 25 per cent in London.
Across the UK 30 per cent of companies have had their emergency credit options reduced over the past two years.
Funding Options suggests the withdrawal of overdrafts is one of the biggest drivers of the increasing use of alternative finance, such as invoice finance, asset finance, bridging loans and peer-to-peer lending.
The research comes as the government is expected to announce an increase in the number of so-called ‘enterprise zones’ in England, from 24 to around 40, in the Autumn Statement this month.
The zones are key to the government’s Northern Powerhouse initiative where they’ve received £1.1bn of investment, over the past four years.
Conrad Ford, chief executive of Funding Options, said: “Reductions in small business overdrafts are cutting off the fuel for the Northern Powerhouse. The ongoing reductions in overdrafts for small businesses is the hidden credit crunch.”
The government is planning to launch an alternative finance referral scheme, under which banks will refer SMEs they turn down for funding to alternative finance platforms in early 2016.
“As the banks have been forced to reduce their exposure to small business lending, they have focused on overdrafts as a risk that can be eliminated with relative ease, and at short notice,” Ford added.
The Chancellor George Osborne is trying to rebalance the economy away from its bias towards London and the South-east of England with the Northern Powerhouse scheme, though it has some way to go.
Economic growth in the North-West of England was found to be 2.6 per cent a year, while growth in the North-East is running at just 2.4 per cent, accord to the Royal Bank of Scotland Regional Growth Tracker for the second quarter of 2015.
Economic growth in London comes in at 3.3 per cent.