MPs have called for the Government to act to make it mandatory for providers to declare an Annual Percentage Rate (APR) on any finance they offer to SMEs. This change is required to bring much needed transparency to the commercial finance market.
An Early Day Motion calling for Government action was tabled in the House of Commons on Wednesday 11th May by Helen Goodman MP, a member of the influential Treasury Select Committee.
Helen Goodman MP commented: “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. 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.”
The EDM has received cross party backing, including Conservative Julian Lewis who is part of the new 2015 intake and is a former financial journalist.
This motion adds further support to the APR4SMEs campaign which was started three months ago by alternative overdraft provider Growth Street, and is backed by the IoD and the Institute of Chartered Practicing Accountants among others, who are calling on all stakeholders to show their support for this critical issue that effects all British businesses.
At present, commercial finance offered to Limited companies in the UK falls outside the scope of the Financial Conduct Authority (FCA) and is therefore unregulated activity. There is therefore no requirement for commercial finance providers to disclose the Annual Percentage Rate (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.
The Early Day Motion tabled today directly addresses this issue:
“That this House acknowledges the value of small and medium sized businesses to the British economy; notes that SMEs often have difficulty in securing fair and transparent lending rates; and calls on the government to require lenders to provide an Annual Percentage Rate (APR) on any finance they offer so that SMEs can make informed choices.”
An investigation into SME banking by the Competition and Markets Authority (CMA) observed 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”.
James Sherwin-Smith, CEO of Growth Street, said: “We have been campaigning for some time to raise awareness of this issue which affects every UK small business seeking finance, and which constitutes the next UK financial scandal in the making unless it is addressed with urgency. We are delighted to have the public support of several MPs and other industry stakeholders. Please visit http://apr4smes.co.uk to find out how you can support the campaign and help stand up for small businesses.”
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.”
Tony Margaritelli, Chairman of the Institute of Chartered Practicing Accountants (ICPA), said: “Surely it is time that our business owners are provided with an APR for their business borrowings. Our small businesses deserve to be provided with this most vital piece of information at the outset and not have wade through obscure percentages and cost structures. If it is good enough for individuals it should be good enough for our businesses. Only with transparency of costs can a decision be made and this campaign will bring a layer of transparency that is presently missing.”
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.”
Justin Fairhall, Founder and Managing Director of Cambridge based SME, Lunchtime Company Ltd., which provides healthy school dinners for children, comments: “It should be of considerable concern to all business’ that APR is not a legal requirement in the commercial world. It’s worrying that if I personally borrow from a bank, they have to tell me the APR, but if I borrow as a business, they’re under no such obligation.”
Supporters can sign a petition on the campaign website supporting the call for SME finance products to carry a mandatory APR, and the website also includes an APR calculator tool which exposes the true cost of commercial finance for small businesses.
Growth Street urges all SMEs and anyone who supports them, to show their support for the campaign by using the #APR4SMEs hashtag on social media to promote this cause.