Issue 117 - 29th June - 27th July
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Banks urged to pass on interest rate cut to small businesses05/12/2008 09:34:00The Bank’s Monetary Policy Committee’s (MPC’s) 1% reduction in the base rate follows its 1.5% cut in November 2008. However, although it is gradually coming down, the interbank lending rate (LIBOR) remains just under 1% above the base rate. ‘Real’ interest rates, those being offered by banks to their customers, are often significantly higher. The FPB is urging the UK’s major lenders to heed the Bank of England and pass on the cut. "This further cut in the rate of interest is pleasing. I certainly hope that it will be very quickly reflected in both market rates and in the cost of borrowing being offered by banks to small businesses," said the FPB’s banking adviser, David Cavell. Although all of the banks benefitting from the Government’s £37 billion bail-out scheme have now pledged to maintain the availability of loans and overdrafts for small firms, there is still evidence that credit restrictions are being imposed by lenders, including those set to receive funds from the European Investment Bank (EIB). The FPB is concerned that banks are increasingly likely to bracket all small businesses – or those operating in specific industry sectors – as ‘high risk’, regardless of the often profitable historical relationships they have enjoyed with them. Every two weeks the FPB is surveying members on its new economic downturn panel in order to gauge lending levels being provided by the banks. One panel member, Kevin Whiting of Sherdon Estate Agents near Basingstoke, Hampshire, has banked with HSBC for 17 years, but recently had an application to increase his small business mortgage – and bring in an additional £600 per month – rejected. However, he found he could not switch banks because of the steep interest rates being offered elsewhere. "In addition to increasing the value of our property, the extra income stream that would be generated would really help us in this climate. It’s preventing me from growing my business. My mobility is also restricted now – I’ve looked elsewhere, but the percentage rate above LIBOR is too high with other banks, by as much as 3.5% or 4%," said Mr Whiting. "My bank said it had decided to withdraw from the property development sector due to the current market conditions. My argument is that, if this is true, it amounts to a moratorium across the board, and means that they’re not considering individual cases." onrec.com news can only be reproduced with the permission of onrec.com or if onrec.com is attributed as the source.
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