The British Bankers’ Association recently released a factsheet geared towards small business banking account holders.
Detailing the factors that banks take into account when calculating interest rates when giving business loans, the factsheet (entitled Small Business lending – How Banks Set The Price For Loans To Small Businesses) seeks to educate the small business banking account owner on what factors control the the costs integrated into lending credit in today’s financial climate.
The factsheet details three key points that have a controlling interest in the cost of credit: the costs of administering the loan, the costs of the funds themselves, and the cost of capital and risk. Aimed at restoring trust in the banking industry by facilitating a frank and open conversation between lenders and borrowers, chief executive Angela Knight of the BBA stated that bank lending to small business owners was vital to economic recovery.
Opening a business bank account for the purposes of a business loan increased by about 5 per cent last year despite the economic recession, Knight continued on to comment. In addition there is more than £50 billion currently in circulation from business loans. These loans are available to entrepreneurs but a much higher cost in terms of interest rates and security than in pre-recession years.
The publication of the factsheet was applauded by several BBA member banks and other organisations such as the Institute of Credit Management and the Forum of Private Businesses, to name a few.
Russell Griggs, chair of the Confederation of British Industry’s national council on small and medium-sized enterprises (SMEs), welcomed the publication of the factsheet, stating that it will facilitate forward movement in the shared economic and credit landscape ahead.
Griggs continued on to say that the publication is indicative of a positive trend in which SMEs and banks are communicating in a proper and good dialogue regarding the nature of their shared business interests, and that the document released by the BBA demonstrates a commitment towards SMEs in regards to the amount of information they have made available to them.
The BBA, while not a regulatory body, is the leading trade association for UK banking and financial services with over 225 banking members from 60 different countries.