RBS is cutting rates by 1 per cent on average for £2.5bn of new loans thanks to the Bank of England’s ?80bn “funding for lending” scheme, which aims to kickstart bank lending.
For small businesses, this could result in borrowing costs falling by up to 1.6 per cent.
The “funding for lending” scheme was launched last week by the Treasury and the Bank of England, whereby finance is given to banks on the condition that they pass it on to households and businesses in the form of cheaper loans.
The initiative will allow RBS to slash borrowing costs by a total of £100m over the life of the scheme, said the bank.
As well as reducing interest rates, RBS will also remove arrangement fees on £2.5bn of SME loans. It is estimated that this will save small firms up to £40bn in upfront costs.
The typical saving on the average £100,000 loan for an SME will be around £4,000 – made up of £1,500 arrangement fee and around £2,500 interest. The biggest savings will go to small businesses, with a saving of more than £10,000 on a loan of £250,000 fixed over five years.
UK plc welcomed the news. The 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. This move should make a positive impact on the ground.”
“This is a welcome move by RBS to reflect some of the problems the smallest businesses have been facing in the cost of finance,” added Mike Cherry, national policy chair of the Federation of Small Businesses. “We are especially pleased to note there will be no ‘up front’ arrangement fees, coupled with the additional reduction to the actual cost of the loans.”