Today, SME overdraft provider Growth Street has launched 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 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, Growth Street claims, SMEs are often misled and end up paying more than they should, with a detrimental impact on profitability, growth and local employment.
Consequently, the key recommendation 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 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.”
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.”