Business lending terms haven’t always been as flexible as they are now, and at one time, once you took a business loan out against your company property or assets, you simply let it run for the agreed time – at which point it would be paid back in full. It was a simple market; you borrowed and you paid it back, and if it was the case that you couldn’t pay it back, your business property was taken in lieu of payment by the bank.
But then banks started to see the benefits of commercial transactions and started to offer small changes in interest rates – the extra money that is paid back to the bank over the course of the loan – which were attractive to the company owner as they might save what amounted to thousands of pounds over the course of a long term business loan. Suddenly, the banks and mortgage lenders were fighting each other for the huge amount of business that goes with business lending every year.
Through changes in banking systems and government legislation, being able to swap lenders and products – something that was simply unheard not too many years ago – was made easier and became a process that could be completed in a matter of months, if not weeks. It suddenly became big business for a bank to get the extra investment and for business owners to get the best deal.
But then the banks moved on and specifically targeted small and medium enterprises (SME’s) with possible interest rate swaps. SME’s account for a huge percentage of private sector businesses in the UK, and they employ just over 59% of its workers. This is a huge market, and one the banks were keen to get to grips with. SME’s were bombarded with advice and proposals and it all looked so good.
But then came the first rumblings of mis-selling. It appeared in an initial investigation by the FSA, who found that over 90% of 176 sales to what they termed as “non-sophisticated customers” – meaning everyday small businesses – had been completed without at least one piece of regulatory requirement being completed or followed. All of the major banks came under scrutiny and it was found that the miss-selling of this particular product seemed to be endemic.
Within days of the story breaking, firms of solicitors were lining up to help SME’s discover if they had been mis-sold to and were therefore owed money from the bank. This is a situation that is likely to take many years to fully resolve and many interest rate swaps will have to be examined to see if they comply with the regulations of have indeed been mis-sold.
If you believe that you have been mis-sold, or even if you have undergone an interest rate swap over the last couple of years, it is worth seeking the advice of the professionals to determine if it is the case and to pursue a settlement with the bank.