01 August 2010
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Naughty old banks!

Banks are being accused of undervaluing business property so that they have insufficient security for business loans, the Forum of Private Business (FPB) has warned.

Undervalued properties are preventing the banks from lending to small firms, the Forum claims.

FTB believes that banks are often under-valuing properties when considering them as security for business loans. This means that many small businesses are either forced to stomach unfairly high interest rates on credit – or are denied loans altogether.

Research carried out by the Forum last month revealed that smaller businesses can expect to pay more than double the interest rate on unsecured loans than on lending guaranteed by assets. On average, members of the Forum's Economy Watch panel faced interest rates of 11.8% on unsecured borrowing, compared with 4.5% for secured lending. Of those business owners providing security, almost three quarters 74% secured the loan against either a commercial or residential property, highlighting the importance of fair and accurate valuations.

Andrew Bacon, of business property specialists LeaseholdersUnited, is the Forum's advisor on property issues. He explained: "One of the root causes of the crisis of lending on commercial property is the lack of transparency in the UK's commercial property market. This has left many valuers with inadequate market data that, given economic conditions, will make them more pessimistic resulting in lower valuations on commercial properties. This means many banks will subsequently have a limited appetite and ability to lend to businesses."

Author
Paul Gay

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