Why do lenders have a minimum contract period?

Well to be honest not all lenders do. The standard however does seem to be a 12 month contract with either a 3 or 6 month notice period. However, some lenders offer a 28 rolling contract and I have seen some clients sign up for a 4 year contract (not under my advice I may add!)

So why do lenders insist on a minimum contract period?

If you look at the process of setting up an invoice finance facility I am sure you can appreciate that the costs are front loaded. The costs relate to the workload of the lender. They have a sales person that will visit you and then write up a report supporting your application. They have an underwriter who will review the report and make recommendations. A surveyor will visit you and write a detailed report about your business. The sales person will review this and update their report accordingly. The underwiter will provide the final sanction. Their is the the administration involved in actually getting you set up as a client.

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With all these costs being front loaded if you were a client for only a few months the lender would lose money. Their contract periods are in a way justified.

However, if they are charging you a survey fee and an arrangement fee this argument is somewhat weakened.

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