90% SME Loan Fees? It Happens, Says UK Group

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The U.K. Parliament’s Select Committee on Business, Innovation and Skills is approaching a review of small business lending practices, but ahead of that review, a group is calling for the committee to address unfair interest rates being imposed on SME borrowers.

According to reports last weekend, small businesses are being charged interest rates of up to 90 percent by banks and other lenders that charge the borrowers through hidden fees.

The Campaign for Regulation of Asset-Based Finance is calling on policymakers to pass legislation that would require banks and alternative lenders to publish their interest rates. Reports noted that while these lenders are legally obligated to publish annual interest rate fees for credit cards, mortgages and consumer loans, they are not required to do the same for small business loans.

“This single move would bring much needed clarity to the true price of asset-based finance and help clients compare costs,” said a spokesperson for the campaign. “Support is building, and it has been breathtaking the number of businesses who have seen our blog and then rung us up, saying they went for what looked like 2.5 percent plus an admin fee that turned out to be an API of more than 90 percent.”

[bctt tweet=”What looked like 2.5% plus an admin fee turned out to be an API of 90%.”]

While the campaign is looking for all lenders to be required to publish their interest rates, the group said that asset-based financers are the worst offenders of unfair fees.

U.K. lawmakers have made SME lending a focus in recent years, as analysts note the gap in small business lending among traditional banks, leading to a rise in alternative lending. Despite that rise, some still view access to working capital as a struggle for small business owners.

“After real difficulties during the credit crunch, business access to finance appears — superficially at least — to be back to normal,” said Select Committee Chairman Iain Wright MP. “But small businesses, in particular, still say that access to finance is one of their biggest obstacles to future growth.”