Small firms looking for loans to help them develop their businesses are having to cope with rises in the cost of borrowing, a leading business group has argued. Severe difficulties in the US sub-prime mortgage sector have thrown the money markets into turmoil and have raised fears about the willingness of lenders to take on what they may see as risky debts. Now the Federation of Small Businesses (FSB) has said that those liquidity problems have made banks more reluctant to lend money to smaller firms and to charge higher rates of interest where loans are agreed. The FSB reported that some small businesses were facing interest payments of between 10 per cent and 11 per cent, some two percentage points higher than the rates that were on offer before the credit crisis. Matthew Knowles of the FSB said: “The issue is that the banks are being more choosy over who they lend money to until they ride out the storm. There’s a bit of a ‘Computer Says No’ mentality. Banks often see small businesses as more of a risk - and because they aren’t able to tick all the boxes which the banks set out, they struggle to borrow.” The FSB believes that worries on the part of lenders about exposure to bad debt will inhibit the ability of small businesses to grow and expand. Mr Knowles added: “A large majority of start-ups are not going on to employ one or two people, which is what we need to see to bring about a reduction in unemployment.” However, the main banks have denied that the recent troubles in the credit markets have had any effect on their lending policies or the rates they charge for loans. Stephen Pegge, the communications director for Lloyds TSB Business, commented: “We look at the base rate as our key price for most of our assets and liabilities. There’s been no decision that I am aware of concerning commercial banking of any change in our funding situation.” Date:11 September 2007
Content by: Made Simple Group
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