Why does the APR4SMEs campaign exist?
Commercial finance in the UK is unregulated, and therefore there is no requirement for providers to disclose the Annual Percentage Rate (APR) of their products. This enables providers to hide the true cost of credit by advertising products excluding fees, or by using rates for periods less than one year. As a result, many businesses are misled, and end up paying more than they should.
An initial approach to ABFA to make APR mandatory was rejected. The Asset Based Finance Association is an industry body that specifies the code of conduct that covers most major commercial finance providers (including the biggest banks in the UK). We think ABFA are wrong to reject this for lots of reasons, but are powerless to change their mind.
We are therefore calling on the Chancellor to make it a legal requirement for all commercial finance to carry an APR within the March 2016 budget statement.
How can I support the APR4SMEs campaign?
You can support the campaign in a number of ways.
2. Show your support: Share your support for the campaign on social media using the hashtag #APR4SMEs – and please encourage others to do the same! The more support we have, the greater chance we have of achieving our goal!
3. Share your story: why not post a selfie or create a short video explaining why you think commercial finance should carry an APR. Perhaps you have had a bad experience of being charged more than you expected? Share it with us and others who support and follow the campaign.
4. Calculate your APR: if you’re a business and think you’re being overcharged, try this free commercial finance cost comparison tool we've made. We are logging the data anonymously and will share the results with government to provide clear evidence that most businesses are paying a lot more than they think, and why APR is badly needed.
5. Write to your local MP, chambers of commerce and industry trade association asking them to support the campaign.
Why is commercial finance unregulated?
We think there is a case for at least some regulation, rather than none, as businesses deserve protection from bad practices in the financial services sector. It seems inappropriate to us that if, for example, a couple took out a £100K mortgage for their home, they would be told the APR, but if they took out a £100K loan for their business, they would not.
However, the recent view from HM Treasury (HMT) was they thought that regulating business lending would “result in a higher cost of lending to businesses. This would be at odds with this Government’s commitment to improve access to finance for SMEs.”
We think this is short sighted. Further both the Department of Business, Information and Skills (BIS) and HMT appear to be providing conflicting views on SME finance regulation.
What is APR and why is it needed?
The Annual Percentage Rate is a standardised price metric, which expressed as a single percentage, represents the cost of finance averaged over one year. Note that APR includes interest as well as any associated charges, fees or additional costs.
APR is a simple, but effective, tool to help compare the cost of finance. By expressing all interest, charges, fees or additional costs in a single percentage, it is possible to easily identify differences in price between a variety of finance products and providers, helping buyers to negotiate, increasing competition, and lowering the cost of finance overall.
Who started the APR4SMEs campaign?
The campaign was started by Growth Street, an alternative finance platform, providing SMEs with business overdrafts.
Growth Street believes that well run businesses should be able to access finance that is flexible, transparent and fairly priced. Growth Street therefore voluntarily publishes the APR of its business overdraft product, and urges commercial finance providers to do the same.
The campaign has received considerable coverage in the alternative finance press: including a recent response to some direct lenders to SMEs looking to criticise efforts to introduce price transparency via the adoption of APR.