An Early Day Motion calling for Government action on SME finance pricing tabled last week in the House of Commons by Helen Goodman MP has received cross party backing
The motion focused on the need to introduce a clear annual percentage rate (APR) for SMEs. The move came on the back of the publication of provisional findings on SME finance published by the CMA on 22 October 2015 revealed 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”
‘Time to level the playing field’
In response, Goodman’s motion focuses on forcing lenders to declare an Annual Percentage Rate (APR) on any finance they offer to SMEs. “I think it is important that lenders should have to give SMEs a transparent APR figure so that they can properly compare offers and drive a more competitive financial market,” said Goodman. “It is unfair that SMEs currently work under such a disadvantage. Now is the time to level the playing field and help our SMEs to succeed.”
As the law currently stands, the Financial Conduct Authority (FCA) does not regulate commercial finance products offered to Limited companies in the UK. As a result lenders are not obliged to publish a single transparent APR, a situation, critics claim, that allows lenders to exploit borrowers through the use of opaque and hidden tariffs and fees.
‘Openness and transparency at the heart of business’
The call from MPs has received almost unanimous backing across the board. Andy Silvester, Head of Communications at the Institute of Directors (IOD), said: “Choosing how and where to access finance is one of the most important decisions that small businesses make, and it’s only right that entrepreneurs have access to all the information they need before making their choice. Openness and transparency is at the heart of all good business. Those that offer it will be rewarded.”
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.”
Claire Spencer-Churchill, joint MD at fashion SME Claret Showroom, said: “When we were considering the various finance options for our business, at first glance there were some tempting headline rates. But when we dug further into the terms and conditions and added up all the charges, the overall price was actually going to be much higher. We were lucky to avoid signing up to a contract that would have cost us a lot more. SMEs desperately need an APR metric that compares the cost of finance, to expose the true cost of finance and ensure other businesses aren’t lured into a trap of paying more than they should.”
Tomorrow will see the publication of the Competition and Market Authority’s provisional decision on the remedies it feels necessary to equalise and improve the retail banking market.