Undervalued properties preventing bank lending

Nia Williams

August 19, 2010

The Forum of Private Business 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 adviser 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.”

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