Contractors are increasing their overdrafts and loans as they suffer "severe cashflow problems", bucking the national decline in business borrowing, C+D has learned.

Accountants told C+D that pharmacists were increasingly turning to credit to cope with the effects of the tough financial climate and category M clawbacks.

The comments came after the C+D Salary Survey 2012 found that more than half of contractors had extended their overdraft arrangements in the past year, compared with only a third in 2011. And 16 per cent of contractors said they had taken out or extended a loan to cope.

"Profits in the industry are on the decline but the cost of living has increased, thus causing severe cashflow problems" Umesh Modi, Silver Levene

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Pharmacies appeared to buck overall borrowing trends, as the Bank of England announced last week that lending to businesses had steadily decreased over the three months to October. Finance company Pharmacy Partners said it had seen a "number of enquiries" from contractors looking for help with funding. "Cashflow appears to be generally tight and the latest round of category M clawbacks is not going to help matters," said Pharmacy Partners director of business development Andy Harwood.

And Umesh Modi, partner at accountancy firm Silver Levene, said he had seen increasing reliance on credit over the past three years. "Profits in the industry are on the decline but the cost of living has increased, thus causing severe cashflow problems," he told C+D.

"Pharmacy contractors are using other sources and not just the banks to borrow money," he reported. "Often these are family and friends [or] factoring companies – I have also seen locums increasing their debt burden by borrowing on their credit cards."

And the need to meet General Pharmaceutical Council premises standards may worsen the problem, Mr Modi added. "Certainly it will force many to borrow money and fall into further debt to improve the premises and, if the contractors fail to do so, they will not be able to dispose the businesses at the right price," he warned.

But Lloyds TSB assured contractors the new standards would have a "limited effect" on its decisions. "We recognise that premises regulations will prove a challenge to some segments of the market and operators my experience increased overheads because of these reforms – however, this will not impact on our overall commitment to lend to the sector," said Lloyds TSB Commercial head of healthcare banking Ian Crompton.

For more results, comment and news from the Salary Survey 2012 as well as tools including a salary calculator, wheel of blame, interactive map and employed/locum comparison calculator and much more click here