A finance provider has launched a campaign to stop lenders from hiding charges and interest rates when selling financial products to SMEs.
The campaign – APR4SMEs – has been set up by London-based Growth Street, to raise awareness of the issues faced by small firms when trying to access finance. It is urging the government to take action and ensure transparency in the marketing of products.
Opacity in deals
Currently, commercial finance for limited companies – unlike consumer lending – falls outside the scope of the Financial Conduct Authority and as such, is unregulated.
As a result, commercial lenders don’t have to disclose the annual percentage rate (APR), making it difficult for small firms to know what they’re getting and to compare deals.
The campaign includes a submission to HM Treasury and a petition calling on Chancellor George Osborne to make it a legal requirement for all commercial finance to carry APR within his budget statement next month.
Addressing ‘financial scandal’
James Sherwin-Smith, chief executive of Growth Street, 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.
“Commercial finance in the UK is unregulated, and therefore there is no requirement for providers to disclose the 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, SMEs are often misled and end up paying far more than they should, with a detrimental impact on profitability, growth and local employment.”
In the submission to the Treasury ahead of next month’s budget, Growth Street said: “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.”
The Forum of Private Business (FPB) is supporting the campaign. The FPB’s managing director Ian Cass 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.”