Small
companies taking out loans are being charged interest rates as high as
90 per cent, say campaigners who are demanding a change in legislation
to force lenders to come clean over costs.
Pressure
groups hope their calls will be considered as part of a review of
lending to small companies launched this weekend by Parliament’s Select
Committee on Business, Innovation and Skills.
Banks
and other lenders are already required by law to publish the annual
percentage rate they charge for loans, credit cards and mortgages, but
they are not bound by the same rules when making loans to businesses.
Crucially such APRs take into account the cost of extra charges, which add significantly to costs.
The
Campaign for Regulation of Asset Based Finance has written to
representatives of the leading banks to call for a published interest
rate to be mandatory.
Brian
Moore, a spokesman for the campaign, said: ‘This single move would
bring much needed clarity to the true price of asset-based finance and
help clients compare the costs.’
He
added: ‘Support is building and it has been breathtaking the number of
businesses who have seen our blog and then rung us up saying they went
for what looked like 2.5 per cent plus an admin fee that turned out to
be an APR of more than 90 per cent.’
Moore said
the lack of an official APR calculation meant examples of loan rates
given by lenders could be misleading because various fees, compulsory
insurance and other charges could boost the total cost to something far
higher than expected.
Campaigners
have lobbied the Asset Based Finance Association – which counts all of
the leading banks among its members – as it claims such lenders are the
worst offenders.
James
Sherwin-Smith of business lending comparison website Growthstreet is
wholeheartedly supporting the demands for the clear pricing of the cost
of loans to small businesses.
He
said: ‘I hope the Select Committee on Business, Innovation and Skills
will back our campaign for an APR for all SME finance products.’
Bank lending to smaller firms has been the subject of controversy since the credit crunch.
Select
Committee chairman Iain Wright MP said: ‘After real difficulties during
the credit crunch, business access to finance appears – superficially
at least – to be back to normal.
'But small businesses in particular still say that access to finance is one of their biggest obstacles to future growth.
‘As a committee we want to look at how access to finance has changed since the end of the financial crisis.’
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