SME overdraft provider, Growth Street, exposes SME finance mis-selling scandal, and issues a submission to HM Treasury in advance of the Chancellor’s 2016 Budget statement, demanding the introduction of an APR on SME finance products. Today, Growth Street launches the APR4SMEs campaign to raise awareness of this issue and challenge the Government to back British businesses.
At present, commercial finance offered to limited companies falls outside the scope of the Financial Conduct Authority (FCA) and is unregulated. There is therefore no requirement for commercial finance providers to disclose the Annual Percentage Rate (APR) of their products. This allows providers to employ opaque tariff charges, hide fees in complex terms and conditions, and make it difficult for firms to compare the cost of finance. As a result, SMEs are often misled and end up paying far more than they should, with a detrimental impact on profitability, growth and local employment.
Consequently, the key recommendation that could be applied easily through legislation in this year’s Finance Bill or through a code of best practice is that:
“All providers of commercial finance should, by law, carry clear and accurate details of an Annual Percentage Rate on their financial promotions to SMEs, in all forms that this is required. This single measure will enable businesses to take all relevant costs into account, including all fees as well as interest, when comparing finance options.”
An investigation into SME banking by the Competition and Markets Authority (CMA) observed that:
“Prices are opaque and lending products are complex”, and concluded that “the generally bespoke nature of SME loan pricing…has meant that it is difficult to carry out an equivalent analysis of prices on SME lending products”.
James Sherwin-Smith, CEO of Growth Street, says “We are campaigning to raise awareness of this issue which affects every UK small business with finance, and which constitutes the next UK financial scandal in the making unless it is addressed with urgency. Please visit http://apr4smes.co.uk to find out how you can support the campaign and help stand up for small businesses.”
Clive Lewis, Head of Enterprise at the ICAEW, said: “While some good progress has been made to increase access to finance, particularly via alternative finance providers, APR would go a long way to help firms compare prices and help them select the best deal.”
Ian Cass, Managing Director of the Forum of Private Business, which is supporting the campaign, says: "Business owners want to focus on developing their business not wading through terms and conditions to try to work out what financial product is right for their business. Although it is limited, APR is widely understood and will help businesses to make informed decisions. That is why the Forum, along with many other employers, supports this measure."
Victoria Raffé, former Director of Authorisations at the FCA and Growth Street Advisory Board member, said: “The lack of protection and transparency for Limited companies seeking finance within the current regulatory regime is a real concern - government and others must consider the potential detrimental impact this has on SMEs.”
Claire Spencer-Churchill, joint MD at fashion SME Claret Showroom, said: “When we were considering the various finance options for our business, at first glance there were some tempting headline rates. But when we dug further into the terms and conditions and added up all the charges, the overall price was actually going to be much higher. We were lucky to avoid signing up to a contract that would have cost us a lot more. SMEs desperately need an APR metric that compares the cost of finance, to expose the true cost of finance and ensure other businesses aren’t lured into a trap of paying more than they should.”
Justin Fairhall, Founder and Managing Director of Cambridge based SME, Lunchtime Company Ltd., which provides healthy school dinners for children, comments: “It should be of considerable concern to all business’ that APR is not a legal requirement in the commercial world. It’s worrying that if I personally borrow from a bank, they have to tell me the APR, but if I borrow as a business, they’re under no such obligation.”
Supporters can sign a petition on the campaign website supporting the call for SME finance products to carry a mandatory APR, and the website also includes an APR calculator tool which exposes the true cost of commercial finance for small businesses.
Growth Street urges all SMEs and anyone who supports them, to show their support for the campaign by using the #APR4SMEs hashtag on social media to promote this cause.
Further details of the issue and of how the Government can address it are contained in Growth Street’s submission to HM Treasury, found here.