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Bank Borrowing Too Expensive?

So the Chancellor of the Exchequer has finally realised that the banks are charging more than they were 18 months ago. We have known for sometime it has become increasingly more difficult to obtain hire purchase and finance lease facilities as the banks and high street finance companies continue to restrict credit.

In my opinion they are caught between a rock and a hard stone. The economy is in a mess due to their irresponsible approach to lending in the boom times. Now that we are in a recession and they have been bailed out they are supposed to be helping the small businesses but they have used the money from the government to improve their balance sheet.

For every loan or overdraft they advance they are supposed to have a percentage of the advance in cash reserves. How much they put into reserves depends on the finance product in question. For example if an overdraft facility is granted a much higher percentage of the advance must be kept in reserve than a factoring or invoice discounting facility for example. That is why your bank manager will always try and push a business into a factoring or invoice discounting rather than an overdraft facility.

In addition to providing better security factoring or invoice discounting is less onerous on the banks reserve requirements and improves their overall balance sheet. The high street banks will tell you they are open for business but privately they are cherry picking their deals. Although the banks are charging a higher margin the overall costs in the majority of cases has significantly been reduced virtue of the fact the bank base rate is so low.

It must also be remembered that finance is a risk reward businesses and funders have the right to charge their customers appropriately. Although the banks have finally woken up to this fact if you are a business and you have been offered a facility from a high street bank it will probably be by far the cheapest finance on offer.

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XL Business Finance Ltd is a privately owned and independent business financing company with established links to many of the UK's leading finance houses. XL Business Finance provides a viable alternative to high street banks that lack the flexibility and imagination to provide a solution to most business users requirements. XL Business Finance can provide a full range of business financing solutions and we ensure a high level of customer service and pride ourselves on quick decisions. Our independent status will ensure any offer of funding and asset finance leasing is best suited to our customer’s needs.

XL Business Finance, Eaton Place Business Centre, 114 Washway Road, Sale, Cheshire M33 7RF UK.

 

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