Banks are pushing invoice finance as an alternative to overdrafts so we talk to three businesses about their experience of using this form of finance

"Giving a small business an overdraft is like handing a child a loaded gun,” a leading business banker has told MPs in the Commons.

Without sensing that he might have said the wrong thing, the banker went on to advocate invoice finance as “a highly inexpensive form of finance if used properly”.

Official surveys show demand from small businesses for overdrafts remains on the increase, with 35pc of firms applying in 2010 compared with only a quarter in 2007.

Banks, however, are less keen about overdrafts, as this banker speaking on condition of anonymity made clear. The part-nationalised banks – Royal Bank of Scotland and Lloyds Banking Group – may have pledged not to withdraw or alter the terms of agreed borrowing facilities before they mature, but that is not stopping them encouraging customers to shift onto other forms of finance.

While traditional bank lending to small businesses is still declining, lending against assets, like a company’s invoices, is growing. They rose by 9pc to £12.4bn in the first quarter of 2011, according to the latest figures from the Asset Based.....Click HERE to read more on this story