Royal Bank of Scotland Group plc is cutting rates and improving borrowing terms for small businesses thanks to the Bank of England’s £80 billion scheme to kick-start bank lending.
NatWest parent company to RBS-which is 82 per cent owned by the taxpayer-said it was using the recently launched funding for lending scheme (FLS) to slash rates by one per cent on average for £2.5 billion of new loans, while the smallest firms will see borrowing costs reduced by 1.6 per cent.
The move follows an announcement by RBS that it was cutting mortgage rates for first time buyers as a result of the new scheme.
The Bank of England and Treasury launched the scheme to offer funding to banks on the conditions they pass it on to commercial property businesses and households in the form of cheaper loans.
The RBS Group claims that the new rates will save small companies £4,000 on the cost of an average loan and will save around £100m in total over the life of the scheme, which was introduced on the 1 August. As well as dropping interest rates, RBS is also removing arrangement fees on £2.5 billion of loans to small businesses, saving an estimated £40 billion in upfront charges.
Business leaders have welcomed the move to pass the lowered rates on to credit-starved commercial property companies.
The typical saving on the average £100,000 loan for a small and medium-sized enterprise (SME) will be around £4,000, made up of around £2,500 interest and £1,500 arrangement fee. The biggest savings will go to small companies, with a saving of more than £10,000 on a loan of £250,000 fixed over a period of five years.
British Business Secretary Vince Cable said competition in Britain’s banking system, which is dominated by five big lenders – Barclays, Royal Bank of Scotland, Lloyds, Santander and HSBC, was improving.
New entrants such as Virgin Money, Metro Bank, and Aldermore, as well as growing existing players such as the Co-operative Group , who are set to acquire 630 Lloyds branches, are aiming to grab business from more established lenders.
RBS said the changes have already come into play and stressed that the money will be divided up across the bank’s regional teams and managed locally in order to guarantee all business communities benefit.
Director-general of the CBI, John Cridland, said: “Many small and medium-sized companies are poised to grow and create new jobs, but have been put off doing so because of the rising cost of finance, so this move should make a positive impact on the ground.”
John Longworth, the boss of the British Chambers of Commerce added: “The real test is whether Funding for Lending will reach those parts of the real economy that need it most: the fast-growing and new businesses that we rely on for jobs and exports. We hope RBS and NatWest will lead the way by backing them, too, through their welcome new initiative.”
It’s about time banks started lending to businesses again. I’ve been planning to expand my hairdressing business for some time and been prevented from doing so. Perhaps now I’ll be able to.
Let’s hope so Maxine, good luck with your business.