Over 100,000 UK small and medium-sized businesses (SMEs) have been charged for clearing bank loans early, according to new research by peer-to-peer (P2P) firm rebuildingsociety.com.
Its nationwide study found one in three SMEs which have paid off fixed-term loans before the end of the term have had to pay one-off fees despite taking action to cut their debts highlighting the lack of flexibility in bank finance.
Analysis from rebuildingsociety.com shows the chances of having to pay fees for clearing fixed-term loans are high, with just 9% of business loans currently on the market do not reserve the right to charge early repayment fees.
The research from rebuildingsociety.com shows banks and building societies do not always enforce the fees; around 200,000 SMEs which have cleared debts early say they have not been charged. Typically they can be 1% of the total amount borrowed but the fees will vary depending on how early the loan is repaid in a fixed-term.
And analysis by the P2P firm shows that SMEs are increasing the amounts they are repaying: in Q2 2013 there were a total of £10.8 billion in loan repayments by SMEs, up from £10.4 billion in Q1 2013.
With rebuildingosciety.com there are no early repayment charges for borrowers and no limit on the number of loans that can be facilitated through rebuildingsociety.com.
The only business loans on the market that do not currently charge early repayment fees are the Bank of Scotland Fixed Rate, the Danske Bank Business Variable Repayment, the Lloyds Bank Base Rate and the Lloyds Bank Fixed Rate.
Daniel Rajkumar, managing director of rebuildingsociety.com said: “SMEs can find themselves having to pay extra for doing what they believe is the right thing and clearing debts early as more than 90% of bank loans on the market reserve the right to charge.
“SMEs need flexibility in borrowing and the ability to clear loans without the risk of being charged extra. Our research shows 100,000 have had to pay extra for clearing loans and although banks show some leniency it is an issue for companies looking to borrow.
“With SME loan repayments on the rise, SMEs need to be given more alternative financing options which can help provide these businesses with the necessary growth capital on their chosen terms at a fixed interest rate.
“With rebuildingsociety.com businesses have not only sourced growth capital at consistent interest rates with no early repayment fees but have also won a crowd of stakeholders with an interest in their success which is more powerful and valuable than institutional finance.
“We’re also offering businesses the opportunity to get 25% off their loan arrangement fee by introducing their own lenders to rebuildingsociety. Building a network of people willing to lend to your business time and again is crucial for ambitious businesses.”
