We are hearing stories of lenders applying enormously high rates of interest, as high as 59%, on asset-based loans to businesses or in one case, 26% per month.
It is possible that the influence of lenders like Wonga have persuaded people that rates up to 5000% for unsecured loans are the acceptable “new normal” and this has influenced the asset based lenders, especially for bridging or short-term finance, to significantly increase their rates or apply huge fees.
Some SMEs are desperate for money, perhaps because they want to take advantage of the improving economy to develop or more often due to creditor pressure, and as a consequence are neither thinking straight nor considering restructuring as an alternative when agreeing to such loans that are normally secured against personal assets.
While annual rates quoted on a loan may seem reasonable, it is only close scrutiny of the paperwork that reveals penal rates such as the example of 26% per month that may apply to a covenant breach, despite any security.
Our advice is to look very carefully at the detail when considering an asset-based bank loan and to shop around for alternative sources of finance. There are plenty of options out there and you can find them in our free, downloadable guide: http://www.k2finance.co.uk