Possibly good news for small businesses today, the Royal Bank of Scotland (RBS) announced that they would be making essential improvements to the borrowing terms for their 1.2 million small businesses that currently do business with them.
The RBS have announced the following changes to-date:
Free banking services for all new business start-ups.
They will cap their overdraft charges at 1.5% for any business that has a turnover under £25 million. In addition to this they have guaranteed that they will not withdraw existing overdraft facilities without a breach of contract.
They have also agreed to cap loan arrangement fees for small businesses at 1.5% as well as renew lending on the same of improved terms for at least 12 months.
Despite this apparently good news there have been mutterings that the Government have effectively pushed them to this decision. This is something that RBS’ small business chairman, Peter Ibbetson, vehemently denies and is in fact quoted by the Daily Mail as saying:
“This is the right thing to do; we are trying to respond to what businesses are telling us.”
To me this sounds like a bit of a cop-out, however, before we pass judgement let’s take a look at some of the facts of the case:
The RBS reported in the third quarter that lending had fallen by £500 million in the first nine months and then argued that this was partially due to lack of demand. Interestingly enough RBS has produced this long-term improvement plan just after the Treasury demanded that they provide evidence that businesses are not choosing to apply for loans.
Apparently the pledge of not withdrawing overdrafts has been in place for several years, however, instead of requiring their customers to accept that it can be withdrawn at any time they have put in an extensive list of terms and conditions that must not be broken. If they are broken, no surprise, they remove the overdraft facility!
The promise that overdraft charges will not increase depends on whether or not the risks associated to lending to the customer has risen. So if you’re operating in a declining environment then there is a good chance the charges will increase. Considering we are trading in one of the most serious economic recessions in the past hundred years doesn’t that include everyone?!
So they reserve the right to charge higher fees for firms in financial difficulties – I can’t see how this is beneficial to small businesses… can you? Let’s face the facts – they’re simply going to charge an already struggling company more money and make their financial situation even worse with high bank charges!
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