SMEs could be being hit by thousands in hidden loan charges
A campaign group is calling for lenders to publish APRs in connection with their business loans. The Campaign for Regulation of Asset Based Finance has written to a number of major banks and is campaigning for APRs to be mandatory. A spokesman said that this would bring much needed clarity to the true price of asset-based finance and help clients compare the costs of different financial products.
They are hoping that their calls will also be considered as part of a review of lending to SMEs that was launched by the Select Committee on Business, Innovation and Skills.
An APR or annual percentage rate is intended to give customers a clearer idea of how much a loan or other financial product will cost them. All providers use the same formula and instead of using the headline monthly interest rate, the APR shows how much the loan will cost over the course of a year. This includes the cost of any fees, such as the annual fee on a credit card or the arrangement fee on a mortgage.
Banks and other lenders are legally obliged to display APRs on the financial products they offer to consumers but, crucially, they are not bound by the same rules when it comes to business loans.
The problem of accessing finance from mainstream lenders has been a thorny issues for SMEs for several years now. A lack of funding can leave businesses facing real trouble and could lead to some companies requiring professional advice and business recovery. Even when they can get a loan however, hidden charges could end up making it far more costly than it first appears.
According to a spokesman for the Campaign, it’s not uncommon for a business to take a loan with a low advertised rate such as 2.5% but wind up, through fees, compulsory insurance and other charges, being faced with an APR that is closer to 90%. Campaigners believe that a compulsory APR for SME financial products would allow businesses to make an informed choice between lenders and different financial solutions, while also reducing pressures on small businesses.
By Phil Smith