FPB: Banks 'under-value' properties

19/08/2010

Banks often under-value properties when considering them as security for a business loan for a small or medium-sized enterprise (SME), according to the Forum of Private Business (FPB).

This results in SMEs having to pay unfairly high interest rates or being denied loans completely, the FPB found in its research.

Smaller businesses can pay more than double the interest rate on unsecured loans than on lending guaranteed by assets.

Almost three-quarters of the SMEs included in the FPB's Economy Watch panel said they had secured a business loan against either a commercial or residential property, which illustrates the need for valuations to be fair and accurate.

Andrew Bacon, of business property specialists LeaseholdersUnited, the FPB's advisor on property issues, said: "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."

The FPB works to support, protect and reassure SMEs by adding value to them throughout their lifecycle, as well as representing the interests of them on a national level.

Posted by Emma Noble