"Excessive" bank fees hamper growth

Law firms are still struggling to access bank loans despite signs of economic revival in the profession, according to a survey by independent finance provider, Syscap.

Three-quarters of firms polled said there was no improvement in bank lending in 2013, and more than one quarter said their inability to access credit had forced them to delay investment over the last three years. 

Nearly half the law firms surveyed said bank’s lending margins on loans are too high, and more than half said arrangement fees were “excessive”. According to Syscap, arrangement fees can be as high as 1% of the loan.

Philip White, CEO of Syscap, says: “Since the credit crunch, regulators have forced banks to hold higher levels of capital against the loans they write to businesses, and that burden is being passed on in the form of higher lending margins.

“The results of this survey show that law firms view the arrangement fees charged on these loans as a bigger problem, however. The substantial increases in these fees over recent years are not quite as easy to justify as the increases in lending margins.

“This lack of access to lending is one of the reasons that law firms have increased their use of leasing to invest in growth. A lot of firms have found that reducing their reliance on expensive and difficult to access bank lending can make expansion a more achievable prospect. 

“Access to bank lending is something that has caused even bigger problems for smaller firms than for larger firms. A lot of that is down to the changes in conditional fee arrangements, the cuts to legal aid, and the risk the banks perceive smaller firms to represent.”