Banks increase fees for small businesses

One of Britain’s leading banks has set what small businesses fear could be a lethal precedent by suddenly increasing its interest rates on loans and overdrafts.

Business customers at Barclays reacted with dismay yesterday to learn that some of their overdraft rates had leapt to 15.8%, at a time when their costs are already surging.

The tactic, seen as a direct result of the credit crunch, will force one customer to fork out up to £2,000 extra in interest a year, as a result of the 4% point rise from 11.8%.

For business owners unaffected by the move, Barclays’ decision is being seen as sure sign that their banks may follow its lead and increase rates by similarly hefty margins.

Like Barclays, these UK banks will argue that the cost of funding has soared since the dawn of the credit crunch, which has now pushed half of them into state ownership.

Defending the rate rise, which came as the Bank of England made its biggest cut to interest rates for seven years, Barclays said it would not affect all of its business customers.

A spokesman reportedly added that funding costs had risen, but rates at Barclays had not climbed in three years. Lloyds TSB also said some of its business clients face fee increases.

The comments will fuel fears of business groups that its smaller members with overdrafts will be brought closer to collapse because banks are pressurising their already strained cash flow.

Adding to the pressures, some 51% of small firms have reported an increase in the time it takes to get their invoices paid, according to the Federation of Small Businesses.

The group’s poll of 6,000 small businesses also found that, reflecting rising prices at Barclays, 40% had seen their banking bill shoot up for facilities like loans and overdrafts.

Small business are also seeing management fees of £120 a quarter being imposed on business bank accounts, which originally promised no levies, on top of the hike to overdraft rates. 

 

9th October 2008

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