Just so that you are fully aware of the challenges facing those of us at the coalface during this recession, I am writing to ask your opinion and guidance on the situation I find my myself in with my bank ( both in the sense they hold my account but also in the sense ‘I’ own a significant share in it through you).
I have a commercial loan/mortgage with Lloyds of some £340,000, secured against a building valued in the region of £575,00 to £600,000 (56% – 63% loan to value). I have an unblemished 3 year record with them having never missed a payment nor breached any of the conditions pertaining to the loan.
Earlier this year I approached them for help and advice in restructuring the debt as I felt an interest rate of 4.75% was a bit on the high side and even a 0.1% shift in the rate would make a big difference to my business.
After many abortive attempts it was, up until recently, a fruitless exercise as any reduction in the rate I am paying was more than offset by fees and tie ins, meaning it would be a minimum of two years before I saw any benefit from a rate reduction.
Then, recently I received an offer under the ‘FLS’ scheme, where by I was offered a rate of 3.3%, reducing the interest payable by over £4,900 p.a. However this was accompanied by a requirement to pay a £5,000+ ‘Arrangement Fee’, thus negating yet again a full years benefit from the reduced rate.
I then came across articles and documents giving me more details about the ‘FLS’ and discovered that the money I was being offered was the same money that you are offering to my bank at 0.25%.
Notwithstanding the fee, I have to agree that 3.3% is a competitive rate, and having been self employed for many years I am the last person to deny anyone the right to make a reasonable profit. BUT, my calculations brought me to the following conclusions.
If I take the loan as offered by my bank, they will borrow £340,000 from you at a cost of £850 P.A. They will then lend that money to me, secured against a rock solid asset valued at almost 2 times the amount, and charge me £11,220 P.A., thus making a profit of £10,370 A YEAR.
This is a mark up of in excess of 1300%! If any other business were making this level of mark up you would be pillorying them.
My bank keep trying to quote margins on the sum involved but I try to point out to them it is immaterial. They are buying a product/good/service (in this case money) at one price (0.25%), they are adding no value whatsoever, then multiplying the price they are paying by more than 13 times and then using that as the selling price.
This usury in it worst form. The money you are providing financial institutions with to stimulate lending to SME’s is simply being used to help them profiteer, with no doubt the accompanying huge bonuses which go with such ‘great performances’. With associated fees, SME’s see no benefit from their ‘reduced rates’ for a considerable time – which we have not got!
If you were running a business and were able to buy in at X, do absolutely nothing to improve and develop the item in question, then sell it on at 2X or ever 3X, you would be delighted, but at 13X you would be wearing a mask and carrying a bag marked SWAG.
I run a small B&B and if you were able to sell my butcher bacon at £1 a kilo to help stimulate his sales, would you expect him to try and sell it to me at £13 a kilo?
I have already (collectively with every other tax payer) paid millions of £’s to bail out these institutions and now with your help, they seem to be expecting me to pay through the nose to get them back to where they should be so they can pay me my money back!
Can you lend money to me direct please? I would be happy to pay 2%, thereby quadrupling the return on the money you are lending to the banks.