A campaign has been launched in a bid to make “opaque” lending rates to small firms more transparent.
Commercial finance offered to limited companies is currently unregulated as it falls outside the remit of the Financial Conduct Authority, and providers are not required to disclose the annual percentage rate (APR) of their products.
Growth Street, a provider of overdrafts for small firms, said this allows finance companies to employ “opaque tariff charges, hide fees in complex terms and conditions, and make it difficult for firms to compare the cost of finance”.
It has now written to Chancellor George Osborne to demand the introduction of an APR on finance products for small companies, arguing that the move would help borrowers “take all relevant costs into account, including all fees as well as interest, when comparing finance options”.
The Competition & Markets Authority last year said a lack of competitive pressure in the small business banking market was highlighted by the fact that more than 50 per cent of start-ups looking for an SME account choose the bank with which they have a personal current account, and more than 90 per cent stay with their business current account when the initial free banking period comes to an end.
Growth Street chief executive James Sherwin-Smith said: “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.”
Ian Cass, managing director of the Forum of Private Business, said: “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.”