I would like to highlight an issue that I have not yet seen raised concerning arrangement fees charged on overdrafts.
A business arranging a working overdraft of, say pounds 100,000, may agree to pay x per cent over the normal base rate, these days 4 per cent on the base rate of 7 per cent. On top of this, there will be an annual arrangement fee. National Westminster Bank head office is currently quoting pounds 1,500 on a pounds 100,000 loan. This used to be paid annually, but a number of banks, to 'help the customer' are now charging this quarterly along with the interest charge. Therefore, the business is really paying 5 1/2 per cent over base rate - ie 12 1/2 per cent.
But if during the year the overdraft falls to pounds 50,000, the borrower is then paying not only the 11 per cent interest, but also the arrangement fee, which is now 3 per cent - making 14 per cent.
Arrangement fees are fine if paid as a one-off for a loan, but I do not accept that to review an overdraft after one year requires the same amount of work as the initial set-up.
I am the financial director for six small private companies. All are surviving the recession - but I have nothing but weekly problems with the bank I have been with for 25 years. Eventually we will be out of the recession, and we will be more secure. The banks will be competing for our business. Watch out.