1st June 2012
Goal still wide open for asset finance as cost of borrowing increases
With the UK back in recession, it has been well
documented by the national media
that the banks remain reluctant to lend to small businesses.
The introduction of the new National Loan Guarantee
scheme was supposed to help fill the gap by boosting lending to
small businesses and make it easier for banks to buy wholesale
credit. Yet banks
remain as wary as ever to lend to small businesses; the latest
data from the Bank of England shows lending is still in
Now it appears that the cost of lending to small businesses is
on the rise too, adding to their woes. Recent data shows that small
businesses are now paying the highest interest rates in three
years on loans of less than £1 million, typically around 40%
more than loans between £1 - 20 million, requested by bigger
Of course, the reasoning for this is that banks need to mitigate
the risk of these small businesses going broke, but many SMEs being
charged these high rates are perfectly viable, with established
Businesses, rightly or wrongly, are growing frustrated by their
high street banks. We found that an increasing number of small
businesses are now
taking their complaints directly to the Financial Ombudsman
Service (FOS). The most common complaint is that they are
struggling to renew a loan or overdraft facility with their bank,
or are having them withdrawn at very short notice.
But, as they say, every cloud has a silver lining. With banks
turning away, small business customers are wising up to the use of
alternative financing, which in many ways may be more suitable for
businesses than a traditional loan.
For example, if an SME is looking to acquire a long term asset
such as I.T or machinery, they are generally much better off using
a lease to fund that investment, rather than paying through the
nose to borrow from their bank. This is why lease
financing has risen 7% in the past year.
With lease financing, the lender has security in the asset,
which means they can lend at much more competitive rates of
interest. Plus, lease financing can't be withdrawn on a whim like
an overdraft, giving SME's a little more peace of mind.
It seems too many banks are not looking long term enough in
terms of lending, preferring to shore-up capital for investment in
areas they see as more profitable right now rather than investing
in the businesses of the future.
While the Government's National Loan Guarantee scheme shows that
they have the plight of SME's in mind,
getting banks to honour their agreements seems to be proving
tricky. In the meantime small businesses can look to
alternative sources of finance, such as leasing, which offers far
more competitive financing options.