16th April 2012
Complaints from small businesses against bank loans jumps another 10%
Banks forcing businesses
to take inappropriate overdrafts rather than provide long term
The number of complaints from small businesses about loans and
overdrafts to the Financial Ombudsman Service (FOS) has jumped
another 10% in the last year* from 394 to 435 complaints reveals
Syscap, a leading independent finance provider.
Syscap explains that as only the very smallest businesses are
allowed to lodge complaints with the FOS about their bank the real
scale of disputes between businesses and banks over their loans is
likely to be many times greater.**
Disputes cover issues such as banks refusing to renew loan or
overdraft facilities to a business or doing so only at a
dramatically increased margin or with large additional charges.
Comments Philip White, CEO, of Syscap: "It is disappointing that
so far into the credit crunch the number of disputes continue to
"Whilst some lenders are treating small businesses very
responsibly there have been too many incidences of banks using the
shortage of credit as an excuse to impose the highest possible fees
that they can get away with on their customers."
"Too many of the businesses that banks refuse to fund at an
economic rate are viable, successful businesses."
"That short-termism, by banks, is something to avoid."
Philip White says that one reason why disputes between banks and
their small business customers continue to flare up is because some
banks are encouraging their customers to borrow through bank
overdrafts rather than through longer term asset finance products
Explains Philip White: "An overdraft is a very unsecure way for
a business to fund its expansion. A bank can pull an overdraft at
almost no notice causing a crisis for the business and that is a
recipe for disaster and major disputes."
"If a business is acquiring a long term asset like IT or
machinery then they should use leases to fund that investment.
Lease funding cannot be withdrawn at the whim of the lender and it
doesn't weaken the balance sheet of the borrower."
"If the borrower runs into difficulties the funder that
organises the lease will have a security over the asset. This
reassurance should mean that they are able to lend at a more
competitive rate than if the lending was unsecured."
Last year one of the major high street banks stopped offering
small businesses asset finance, instead asking them to fund their
business investments with overdrafts or term loans.
Adds Philip White: "Some banks like to avoid long term lending
to small businesses as it frees up capital that they might prefer
to deploy in other areas."
*To March 31st 2011
**Only businesses with an annual turnover of less than €2
million euros (approximately £1.8 million) and fewer than ten
employees can complain to the FOS.
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