Growth Street, which provides finance to small businesses, has called for more transparency in the marketing of financial products to the SME sector.
It says that unlike in consumer lending, there is no requirement to advertise an annual percentage rate (APR) enabling businesses to compare deals.
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.”
He said commercial finance offered to limited companies was outside the scope of the Financial Conduct Authority (FCA) and unregulated. “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 a submission to the Treasury ahead of next month’s budget, Growth Street says: “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.”
Ian Cass, managing director of the Forum of Private Business, which is supporting the campaign, 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.”
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