Clifton Asset Management

SMEs BEING HIT BY BANK STEALTH CHARGES, SAYS CLIFTON ASSET MANAGEMENT

Banks‘ renewed appetite for lending to businesses is offset by extra fees and new loan deals

A long-awaited thaw in the freeze on bank lending to businesses is being nullified by a raft of new “stealth” charges.

Lenders are also trying to persuade small and medium-sized companies to convert their overdrafts into loans that have higher interest charges and more stringent repayment terms, according to Clifton Asset Management (CAM).

The company, which provides financial and strategic advice to SMEs and speaks to around 150 firms every week, says there are encouraging signs that bank credit is finally beginning to flow through to businesses.

CAM‘s managing director Neil Greenaway, says: “We have a huge store of anecdotal evidence from business owners who say that for some time now, it has been near-impossible for them to access finance from the banks.

“For example, our last survey of 1,000 companies in England and Wales found that only 2 per cent have successfully managed to secure money through the Government‘s flagship policy to kick-start lending, the Enterprise Finance Guarantee.

“However the evidence of recent weeks seems to show that the banks‘ long-held claim - that they are continuing to lend to SMEs - may finally be starting to ring true.

“But unfortunately the caveat to this is that they are increasingly adding on hefty charges for things such as arrangement fees, facilitation fees, audit fees and review fees, all of which come in addition to the interest on the loan.

“If they do agree a loan with a business, for example, it is now commonplace for the bank to say they need to review it every three or six months, rather than every year as they did previously - and they are charging a review fee each time.”

Mr Greenaway believes part of the problem is that the absence of major global lenders such as Merrill Lynch and the Icelandic banks, plus the demise of HBOS, has left the UK‘s remaining High Street banks struggling to fill a huge funding gap.

“The banks which disappeared in the wake of last year‘s crash were major lenders to some of our largest companies, while HBOS lent to businesses across the spectrum, so the result is that the remaining lenders have had to make their funds go much further than before.

“Therefore the High Street banks, conscious of the need to bolster their own balance sheets, are using available funds to lend to the big, lower-risk companies.

“This inevitably reduces the available funds, and the appetite, for lending to smaller companies which are perceived as being higher-risk, but which are in reality the drivers of our economy who will play the lead role in pulling the UK out of recession.”

ENDS 25th September 2009

For further information please contact Neil Fraser, Sturgess Van Damme, on 01275 349011 or email neil@sturgessvandamme.co.uk