Changes to bank lending rates -
what does it mean?

Banks' access to funds has always been through the wholesale money markets. Such funding is charged at a wholesale rate known as LIBOR (London Inter Bank Offered Rate). Funds are then lent on to customers at a retail rate - over Bank of England base rate. Historically LIBOR has predicted the direction of base rate and thus the status-quo has been achieved.

With the onset of the financial downturn in 2008 many banks, including some of the largest in the UK, lost confidence in the value of the security being offered to them by their peers and as a result became very reluctant to lend on the wholesale markets. This drove up the cost of wholesale funds (LIBOR) at the same time as the base rate started to fall, driven by the Bank of England's desire to control inflation. For the first time ever a gap opened up between the two market rates.

For the first six months of these unprecedented market conditions, the strong foundations of our parent company ,Close Brothers Group, stood us in good stead to subsidise and protect our Clients from LIBOR volatility. But this was largely a temporary measure, and as soon as it became clear that a longer term approach was required we reviewed our business model and decided that the most appropriate way to provide secure levels of funding was by aligning the rate at which we lend with the rate at which we borrow.

And so, along with several other banks and providers we now base all our advances on LIBOR. The impact of this adjustment on Clients has been minimal due to the reduction in LIBOR rates last year. However, Clients may notice a slight monthly fluctuation in the rate being charged as we now set the LIBOR rate on the 1st day of each month.

Close Invoice Finance are committed to supporting SME businesses during these difficult economic times - we have an excellent track record of performance through previous recessions and believe we are very well placed to provide funding and expertise, helping Clients to manage their businesses through the forecasted lean months ahead.

If you'd like to find out more about how Close's portfolio of invoice discounting and factoring services can support your business please visit www.closeinvoice.co.uk or call 0800 220 257 to discuss your requirements.