• Increase in demand for finance as more businesses seek alternative funding
• LDF expanding leasing book to fund more SMEs
The number of small businesses asking the Financial Ombudsman Service to intervene in disputes over bank loan and overdraft facilities has jumped by a third in the last year, according to LDF, a leading finance provider.
Figures show that the number of complaints received by the FOS from small businesses about loans and overdrafts from banks increased from 612 in 2012 to 816 in 2013.*
LDF points out that the actual number of disputes between businesses and banks over their loan could be even greater as only the very smallest businesses are permitted to lodge complaints with the Financial Ombudsman Services (FOS).
Businesses with a turnover of more than €2 million or ten or more employees are not able to make a complaint about their lender to the FOS.
Issues that small businesses can ask the FOS to arbitrate on include non-renewal of loans or overdraft facilities or renewals which incur significantly increased borrowing costs or additional charges.
Peter Alderson, Managing Director at LDF, says:
“Despite the improving economy, funding problems faced by SMEs – even those with strong balance sheets and excellent growth prospects – have not gone away.
“Unfortunately, the banks are caught between a rock and a hard place. One the one hand they are limited by requirements to shrink their balance sheets and pressure to take a more cautious approach to lending, while on the other they are being expected to increase lending to SMEs.”
The government’s Funding for Lending initiative has failed to trigger the increase in bank lending to SMEs that many had hoped for, meaning there is still a major funding gap for UK small businesses.
LDF says that this is a key reason why so many SMEs are turning to alternative funding providers for a solution.
LDF expands funding capacity to meet SME demand for capital
LDF says that due to a shortage of traditional bank funding for SMEs, it is expanding its small business lending significantly to meet demand from British SMEs for funding to invest in growth. As part of this process, LDF will increase its lending both direct to SMEs and through a select number of commercial finance brokers.
Since its buyout by specialist financial services private equity group Cabot Square Capital at the start of the year, LDF has sharply increased the amount of funding it aims to provide to small and medium businesses through leasing, in which businesses can spread the cost of capital expenditures over a more convenient period.
LDF says that it is able to fund a broad spectrum of SME capital expenditures, including IT hardware, office refits, manufacturing and engineering equipment, plant and commercial vehicles.
Says Peter Alderson: “A huge number of SMEs are still not able to make the capital investments they need to, as their banks are constrained in how much they can lend to small businesses. We are looking to step in and fund more SME capital investments than we ever have before.
“Britain’s small businesses are not benefitting as much as they could from the economic recovery, and a big part of that is a lack of access to the funding they need to invest in assets they need to grow. We’re aiming to play a big part in helping SMEs take full advantage of economic growth.
“Our relationship with our broker partners is going to become ever closer over the coming months, and funding more deals for brokers’ SME clients will be an important part of that process.”