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Commercial Loans May Come Under Scrutiny

Published: 16/07/12

Victoria Boid, Associate and Head of Company Commercial Insurance Department, Fisher Meredith, Richmond has contacted us to alert our clients about the potential mis-selling of commercial bank loans.

Businesses wanting to raise finance would normally take out a bank loan and often be offered a product that effectively capped the interest to be paid on the loan.

This prevents the business owner (and underlying business) being exposed to interest rate rises and increased monthly loan repayments.

The sting in the tail, however, is that the product also gave a lower limit of interest so if interest rates were to fall (to say, below 5%), the business owner would still be paying 5%.

Not a good deal in today’s market where the base rate of interest is 0.5%.

Victoria had previously been approached by clients about these products as largely there was a feeling of disgruntlement, but it was put it down to a bad bargain. No-one really could have predicted the extent and depth of the current recession and, at the time, the interest rate product entered into could have been a good thing for the business. Whilst most business owners still felt ‘ripped off’, many accepted that they had hedged their bets and on this occasion it hadn’t paid off.

However, the recent FSA revelations of interest rate fixing has lead to a whole spate of clients wondering if they have been wrongly mis-sold their debt product. The initial FSA inquiry looks as if it may lead to a Leveson style review of the banking sector. With Barclays initially fined £290m for its role in this scandal, other banks are now also under investigation and the situation is just going to get hotter.

What can you do?
It is highly likely that any documentation you entered into is above board, but the key question will be whether the interest rate product you entered into was suitable for you and whether it was properly explained to you.

The media has reported on commission based structures within banks which encouraged teams to push these interest rate collars, even if they were perhaps unsuitable for the business. Over the coming weeks, more information will undoubtedly enter the public domain. This could leave business owners frustrated and angry when faced with servicing levels of debt that may be crippling their cash flow, but perhaps should never have been sold.

Many of these same businesses are faced with a closed door when approaching their bank for working capital, so you can see how the situation will be sitting uncomfortably with those business owners and managers who are fighting to keep their businesses alive.

If you feel that you could have been tied up in a product that was unsuitable for you, Victoria Boid may be able to help. To arrange a meeting please contact Victoria directly on 020 8334 7032.


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