Businesses hit out at banks over increase in loan charges

Published on Saturday 27 December 2008 09:55

BUSINESS leaders in Edinburgh have hit out at banks for forcing firms to accept higher charges on overdrafts, loans and other deals.

They say banks are doing all they can to increase charges of all kinds on customers, with small businesses particularly vulnerable as a result of change.

One hotel developer with operations in the Capital had been a customer of HBOS for 40 years but was told its overdraft was being withdrawn and could only be replaced by agreeing to a new deal at higher rates.

With most banks being extremely cautious about taking on new customers, many firms are left with no choice but to accept the new deals. Ron Hewitt, chief executive of Edinburgh Chamber of Commerce, which has launched a survey of members' dealings with banks, said: "A lot of people are finding that, when facilities are coming up for renewal, funding available to them is being absolutely hiked up.

"The choice of going somewhere else is just not there any more because they are trying to look after their existing customer base, not taking on new customers. The problem it leads to is cash flow. If you can't get a (loan] facility you need, you can't buy parts or put in orders because you can't afford to pay for them.

"It is a compression of business opportunity that depresses the whole manufacturing sector, as well as everyone else."

He said that part of the problem was that banks such as HBOS, Royal Bank of Scotland and Lloyds TSB had taken on loans from the Government that they had to repay at 12 per cent, which was restricting the funds they could make available for lending.

Michael Dixon, chairman of the Edinburgh branch of the Federation of Small Businesses, said many members had been disgruntled as a result of the treatment of firms by banks.

He said: "If the interest rate dropped as a way to stimulate the economy but banks still whack up administration fees, then those costs wipe out any reduction businesses see. A big problem is that banks are less willing to take on new propositions. A lot of people are saying they won't even bother arranging a meeting with a bank about new lending because they know what the answer will be."

One Scottish banking sector source defended the banks' tighter controls. He said: "There is no broad-brush rule in place here. Banks are still all trying to treat customers on an individual basis and that's the way it should be.

"All banks have to take a prudent approach to lending."

A number of banks have announced measures to support small businesses. Bank of Scotland secured 250 million of lending from the European Investment Bank which it said it will pass on to small firms, while it said it was committed to guaranteeing prices on overdrafts for 12 months from date of arrangement while maintaining agreed facilities for 12 months from arrangement.

A spokesman for Bank of Scotland said: "We recognise our customers are operating in difficult conditions. That's why Bank of Scotland has committed to a range of measures aimed at supporting small businesses."