Your IndustryApr 16 2014

Warning on rates for rejected alternative loan applicants

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Chancellor George Osborne’s plan to refer small and medium-sized businesses rejected for finance to alternative lenders will “backfire” and lead to banks increasing their rates, Tim Sutcliffe has said.

The managing director of Shrewsbury-based Pi Financial said most small-business owners who were serious about raising capital would approach a number of different institutions regardless, without the need for further guidance or government intervention.

He added that the chancellor’s consultation on whether lenders should be forced to release information on businesses rejected for finance, together with the arrival of several referral portals, could give banks an even greater opportunity to charge more.

Mr Sutcliffe said: “I am not convinced it is the solution to the problem. The average small business will approach a number of institutions if attempting to raise finance.

“I suggest the idea could backfire, leading to an increase in the margin the banks charge over base rate.”

According to Mr Sutcliffe, since the recession banks have been charging more than ever for business loans and could use the opportunity of an increase in alternative lenders to become even more stringent in their criteria.

He added: “The margins the banks are charging are at an all-time high and – call me a cynic – but this gives the banks the ideal opportunity to say, ‘you have been rejected by one institution and we are therefore charging a higher margin over base rate as your loan now falls into a high-risk band’.”

Adviser view

David Gibson, director of County Londonderry-based Gibson Financial Planning, said: “Anything that makes it easier for small businesses to get the finance they need for investment is a good thing. If the local bank is unable or unwilling to help, it makes sense to ask it to signpost the client to someone who might assist with the loan application.”