Calls for Cap on Credit Card Charges
The Federation of Small Businesses (FSB) has called on the Government to cap interest rates on credit cards to help small firms survive the recession.
FSB national chairman John Wright said putting a ceiling on charges would reduce business costs and free up much needed cashflow.
Research from the FSB revealed that 26% of entrepreneurs use their personal credit card to finance their business and 23% use a company credit card.
“With interest rates at 1.5% and falling, the Chancellor and the Governor of the Bank of England must look into capping interest rates charged on credit cards,” said Wright.
“A cap on interest rates would not only reduce business costs but give consumers a real boost and cut the cost of borrowing,” he added.
However, the Department for Business, Enterprise and Regulatory Reform(BERR) said capping charges on credit cards would fail to help consumers. A BERR spokesman said .
“The Government has consistently rejected calls for interest rate caps on the grounds that they may harm the very consumers they are designed to protect, by restricting access to credit and reducing transparency in charging structures,”
The Institute of Chartered Accountants in England and Wales (ICAEW) head of SME issues, Clive Lewis, said that credit cards were still a widely used source of funding for small businesses, particularly start–ups, but that they needed to be used with caution.
“There’s no doubt that credit cards can be a useful and flexible source of funding, but if you cannot pay off the outstanding amount each month, the interest and charges can be prohibitive. In the current climate, you should also avoid doing anything that might damage your future credit rating.”
“Unless you’re using credit cards for the short–term, it is best to find alternative ways to finance your business, such as an overdraft, selling an asset or looking to family and friends. And while it may be tempting for some businesses to use credit cards to pay their tax bill, they should look into HMRC’s new deferment option first, which may be a better long–term option.” he added.