Small firms raiding their savings as banks refuse to help

Some 15 per cent of firms with turnover of 1 million or more have had to dip into savings to combat the high cost of borrowing, according to a survey by Investec Bank.

The average amount of money raided from each firm's reserves is 91,310.

Linda McBain, from Investec Bank, said: "Some businesses finding it difficult to secure capital are clearly turning to their savings to fund their enterprises.

"However, with interest rates on deposits so low, there is often little incentive to keep money in accounts.

"Our research shows that the average interest rate from a business deposit account on a balance of 50,000 is 0.67 per cent, with just under 17 per cent of banks paying less than 0.1 per cent."

She added that 25 business deposit accounts paid 1.5 per cent or more, with only ten paying more than 2 per cent.

While businesses with cash reserves are raiding savings accounts, others are turning to their directors for help.

Figures released last year by the Federation of Small Businesses (FSB) in Scotland revealed that more than one in five Scottish small business owners have resorted to using their credit cards to keep their companies afloat. Nearly two-fifths of owners said they had dipped into their own savings, while 14 per cent said they had borrowed money from their families.

At the time, Andy Willox, the FSB's Scottish policy convener, warned: "The cupboard marked 'emergency' is bare and, if the issue of bank lending is not resolved urgently, businesses will not have the working capital to take advantage of the recovery -making any upturn more fragile and sluggish than need be."