The Federation of Small Businesses (FSB) has called for the government to take action after it discovered that a fifth of London-based small businesses that have taken out loans in the past year have been saddled with interest rates of 15 per cent or more.
Businesses based in the capital have seemingly been given a raw deal as nationally, only seven per cent of businesses in the UK have incurred interest rates of 15 per cent or more during the same period.
Steve Warwick, the FSB’s regional chairman for London, said: “Small businesses in London are facing mounting financial pressures and are being stung by cripplingly high interest rates. It is easy to forget that the Bank of England interest base rate still stands at a historically low level of 0.5 per cent. It is no surprise that three in 10 businesses in London are dipping into their own savings and inheritance to finance their business activities.”
While the national average rate of interest for loans and overdrafts is seven per cent, the FSB went on to reveal that the average rate of interest being paid on loans or overdrafts by businesses in the capital is nine per cent. FSB research also concluded that a third of London-based firms were paying interest rates between seven and nine per cent on borrowed money.
Subsequently, the FSB is calling on action to be taken, with Matthew Jaffa, FSB’s London senior development manager, revealing that there are a number of options open to small businesses to ensure that they get the best deal available.
He said: “The government needs to push alternative forms of access to finance. There are many different models and organisations providing this but the awareness is not there. There’s peer-to-peer lending, business angels that exist, mentoring support is available and community finance agencies. So there is a host of alternatives to loans and overdrafts that businesses have become accustomed to and become accustomed to being turned away from.”
That said, taking out loans can be crucial in helping to drive a small business forward and Jaffa has a few words of wisdom to share with small business owners which could help them ensure that their meeting with the bank manager is a successful one.
He said: “Before even going to the bank manager and getting the thumbs down, it is vital businesses demonstrate investment readiness, whether it’s speaking to a peer, speaking to the accountant or a mentor. There are a lot of mentoring services around which by getting in touch with them can show you where your finance or business plan can be tweaked, so that when you go to the bank manager you’re in a better position and you have more of a chance of getting the finance you want.”
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