Small business borrowing costs hit their highest in three years

Tim Wallace
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SMALL firms’ borrowing costs are at their highest level since late 2009, analysis out today shows, hitting companies that hope to expand.

The average rate of interest paid on loans of under £1m rose to 3.92 per cent in February, up from 3.46 per cent six months earlier and a post-credit crunch low of 3.03 per cent at the end of 2009, according to Syscap data.

Those costs compare with interest rates of 2.66 per cent for loans between £1m and £20m, and 1.87 per cent for larger loans.

Rising costs of credit at a time when firms want to expand means SMEs must turn to alternative forms of funding to finance their investments such as leasing.

“Lending to small businesses has been a focus for the government – they will be disappointed that despite all their efforts to reduce the cost of loans to small businesses they have actually increased, putting off SMEs from borrowing,” said Syscap boss Philip White.

“Unfortunately, neither Project Merlin, the Enterprise Finance Guarantee scheme nor Quantitative Easing has had the impact hoped for on small business lending. So, hope now rests on the National Loan Guarantee Scheme.”