Undervalued properties preventing bank lending to small firms
The Forum of Private Business is warning that banks are often under-valuing properties when considering them as security for business loans, the result being that SMEs are either forced to stomach unfairly high interest rates on credit – or are denied loans altogether.
Research by the support group revealed that smaller businesses can expect to pay more than double the interest rate on unsecured loans than on lending guaranteed by assets. On average, members of the forum’s Economy Watch panel faced interest rates of 11.8% on unsecured borrowing, compared with 4.5% for secured lending. Of those business owners providing security, almost three quarters 74% secured the loan against either a commercial or residential property, highlighting the importance of fair and accurate valuations.
Andrew Bacon, of business property specialists LeaseholdersUnited, the forum’s advisor on property issues, said: "One of the root causes of the crisis of lending on commercial property is the lack of transparency in the UK's commercial property market. This has left many valuers with inadequate market data that, given economic conditions, will make them more pessimistic resulting in lower valuations on commercial properties. This means many banks will subsequently have a limited appetite and ability to lend to businesses.”
LeaseholdersUnited has developed a solution to the problem in the shape of CostMinder, an online tool which allows you to input the details of any business premises in England and Wales in order to obtain an independent assessment of its value.
Bacon added: "Creating transparency is by no means simple and it has taken LeaseholdersUnited nearly five years to develop a cheap and workable solution. Our 6,000 free 'online communities' can enable businesses to create the transparency needed quickly and easily. This will not only help to firm up valuations but also give businesses the data they need to negotiate lower property costs."
www.fpb.org