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Businesses taking out new loans are being hit with an average interest rate of 3.05% – up from 2.56% at the end of August – the highest in a decade. The hike in the cost of credit is said to be a result of banks becoming more wary ahead of Brexit. Businesses have increasingly been turning to alternative lenders rather than banks to raise cash, with £6.5bn raised from issuing bonds last month, the most since October last year. It is inevitable that these alternative lenders charge higher interest rates. Mike Cherry, chairman of the Federation of Small Businesses, said: “We’ve seen a noticeable spike in borrowing rates. It adds insult to injury that rates for consumer mortgages remain at record lows while viable small firms – engines of job creation and economic growth – struggle to secure a reasonable rate.”

On a related but separate matter, there is increasingly a strong case for small business lending to be made a regulated activity, to help ensure they are not ripped off. Unfortunately the government has rejected calls from MPs and business owners to change the law after a number of lending scandals, but the CEO of the Financial Conduct Authority said there needed to be a “serious assessment of the pros and cons” of bringing lending to smaller companies under the remit of the City regulator.

 

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Raising Finance Factsheet

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