Tailored Business Loans
Tailored Business Loans were sold by many banks and building societies including Yorkshire Bank/Clydesdale Bank, RBS/NatWest, Nationwide, Lloyds Bank, HSBC, HBOS and Barclays. They were sold under a range of names including Tailored Business Loans, Treasury Loans and Sterling Fixed Rate Loans.
Tailored Business Loans were often mis-represented as standard fixed rate loans when in-fact they included potential breakage costs for interest rate swaps - a complex derivative product. These break costs can be up to 50% of the original loan amount.
Since interest rates plummeted in 2008, SMEs who took out these loans are now locked in to high interest rates and cannot switch to a more competitive product. If an SME took out one of these loans and then suffered a downturn in business and was unable to keep making payments, the bank would have ended the loan and required the SME to pay the break costs. In some cases this has forced SMEs out of business altogether.
How were Tailored Business Loans mis-sold?
Clients tell us that bank sales staff focused on the possibility of interest rates rising. The sale of these loans was classed as ‘unadvised’. This meant that bank staff should not have been giving advice about future interest rates. In addition, customers were not fully informed about the break costs which were far in excess of the customer’s expectations based on previous borrowing experience.
Why weren’t Tailored Business Loans included in the FCA Review?
The FCA Review only covers ‘designated investments’ and a tailored business loan is not considered to be such a designated investment as it is not a contract entered into separately, it’s a feature of the business loan. Nevertheless, these loans do contain an embedded swap, albeit one where the bank enters into the swap, rather than the customer. The bank has a clause written into the loan to the effect that the customer is liable for any break costs incurred by the bank in exiting any hedging arrangement taken out by the bank concerning the loan. The detriment to the customer is the same – trapped paying high interest rates, unable to afford the exorbitant costs of exiting the loan.
Expert Treasury advice is key
In our experience, expert knowledge of the treasury sales process and regulatory environment is essential to be able to work with the banks in a constructive manner, without damaging the already-fragile business relationship with the bank.
Even where business loans have expired, it is still possible to claim redress. If you have been affected by a Tailored Business Loan, or you are working with a client who is, contact us for a free no-obligation initial consultation. We work on a no-win-no-fee basis, so you only pay if we succeed in winning you redress.