By Claire West

The number of complaints made by small businesses to the Financial Ombudsman Service about loans and overdrafts has soared 17% in the last year*, rising from 522 to 612 says Syscap, the leading independent finance provider.

Syscap says that SMEs’ overall level of dissatisfaction with their banks is likely to be even higher, as only private individuals or businesses with fewer than 10 employees are allowed to report issues to the Financial Ombudsman Services (FOS).

Syscap explains that the most likely reasons for complaints are banks refusing to renew loan or overdraft facilities, or doing so only at a dramatically increased margin or with large arrangement fees.

Philip White, CEO of Syscap says that: “It is clear from the number of complaints that small businesses continue to face major difficulties when it comes to getting the appropriate kind of funding they need from banks.”

“Improving customer care is now a major priority for many banks, especially after the swaps mis-selling scandal. However, the efforts made at the top to improve service for SMEs may not yet be fully reflected in branch-level decision making.”

“We hear from small businesses that banks still use the tight credit environment as an excuse to impose high fees on their customers.”

Syscap adds that the downscaling of banks’ in-house leasing operations means that businesses are also sometimes offered inappropriate finance solutions, with a lack of longer term loans meaning more reliance on overdrafts.

Philip White explains: “Overdrafts carry interest and fees at often much higher rates than loans. This makes them very expensive for longer term borrowing. Businesses also face significant penalties if they go over the agreed overdraft limit.”

“In addition, unless otherwise specified in the terms and conditions, the bank can recall the entire overdraft at any time.”

“Overdrafts are often secured against a director’s personal assets meaning their home can be at risk if repayments cannot be made.”

“Lease funding is also more suitable to a business’s needs when it is trying to acquire a long-term asset or borrowing to help ease cash flow around predictable costs such as tax bills, because the lender cannot withdraw the funding at a whim, and it doesn’t weaken the balance sheet of the borrower.”

Syscap says that small businesses may start to see better access to funding as a result of bank lending to independent leasing companies being made eligible for the Funding for Lending Scheme.

Philip White explains: “The changes will finally allow banks to channel the scheme’s cheap money through independent asset finance providers, which should allow asset finance providers to expand the amount of funding they can offer.”

“This is good news for small businesses as leasing companies have a lot of the infrastructure and specialist skills to help fund small companies that some banks have lost over the years.”