James Sherwin-Smith, CEO of Growth Street, an SME business overdraft provider (and an SME itself), is available for comment and analysis, and says:
“As an alternative overdraft provider to SMEs and an SME ourselves we are encouraged to hear the Chancellor’s plans for a more favourable environment for small businesses, with 600,000 SMEs to be taken out of business rates whilst 250,000 firms will pay less in business rates; loopholes being closed and the doubling of Small Business Rate Relief permanently. However the Chancellor neglects to address the biggest challenge faced by the UK SMEs: Funding.
The Chancellor is doing nothing to address the unfair, unregulated SME finance market, which is stifling small business growth in the UK. At present, commercial finance falls outside the scope of the Financial Conduct Authority (FCA) and is unregulated, meaning there is no requirement for providers to disclose the Annual Percentage Rate (APR) on any commercial finance product. Promotional materials for consumer credit products are required to carry an APR. However, there is no such protection for businesses, allowing providers to employ opaque tariff charges, hiding fees in complex terms and conditions, and making it difficult for firms to compare the cost of finance. Growth Street presented this issue to the Chancellor in a Submission to HM Treasury in advance of the 2016 Budget, citing supporting materials including results from a study into SME banking services by the FCA and Competition and Markets Authority (CMA) which observed that “processes 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”.
Until it is made mandatory that, by law, all providers of commercial finance would carry clear and accurate details of an Annual Percentage Rate on their financial promotions to SMEs, in all forms that this is required, businesses will have no means of comparing finance options, and will continue to pay far more than they should, with a detrimental impact on profitability, growth and employment. Our recommendation is a positive and implementable step to improve the SME finance market in the UK; we are calling for the Chancellor to show his support for small businesses and act.”