Businesses urged to keep calm to ride the credit crunch

Apr 30 2008 by Tony McDonough, Liverpool Daily Post

More caution is the order of the day as the financial crisis bits deeper. Tony McDonough reports

BOLD predictions of a short resolution to the credit crunch just a few weeks ago have now given way to the sound of hatches being battened down.

A survey published in the last few days by accountants Baker Tilly reveals 23% of businesses in Liverpool are now reporting problems obtaining financing from banks or other sources.

This has led in many cases to an urgent review of business strategy with the March survey reveal- ing that 64% of firms were now being more cautious about their future plans compared to 22% just a month earlier.

Another study published this week by the British Chambers of Commerce found around 25% of firms were having difficulty obtaining credit. However, it also showed that 57% of firms were reporting no problems with banking facilities and the BCC is insisting the SME sector remains "resilient".

Many business people have been reading with dismay the stories about the banks having to go cap in hand to the Government to access more than £50bn of extra liquidity.

Royal Bank of Scotland became the first of the banks to announce it was attempting to raise extra funds through a rights issue. It is asking investors to stump up £12bn. HBoS is said to be finalising plans to raise £4bn in the same way and many analysts believe it is only a matter of time before others follow suit.

The National Federation of Enter- prise Agencies (NFEA) is so concerned about the issue that it has designated this week as Credit Crunch Week. The group will be running workshops, seminars and surgeries all this week to try to offer advice and reassurance to SMEs. "At a time when all the headlines are bad, it's important to get the message across that with a cool head and sound management, you can work your way through this situa- tion," said NFEA chief executive George Derbyshire.

But the banks insist it is "busi- ness as usual" claiming there has been no specific change to lending criteria. But the message from the ground paints a different picture.

Howard Hackney, head of family law at Grant Thornton, said that he had noticed a dramatic change in the attitude of the banks to small firms in just the last few weeks.

"If you had asked me six weeks ago what the attitude of the banks was to SMEs, I would have said there was no real problem. But since their attitude has totally changed.

"We spoke to people from one bank the other week who were in fits of depression because they were not able to lend any money. It is bad for them personally because their bonuses depend upon it. If any of them are lending at all, they are looking to widen their margins.

‘WHAT makes it worse is that some businesses are now actually making decisions based on what they think the banks are going to do.

"We have one client that doesn’t own the building they are based in. When the premises came up for sale with an asking price of more than £2m, they approached the owner with an offer to meet the full asking price.

"The owner had received a lower offer but still rejected the offer from our client when he found out they were proposing to fund it with bank finance. The seller was not confident the bank would follow through, so rejected their offer even though it was the better one.

"It seems to be easier to get funding from the smaller banks but there is a great nervousness around now. The frustrating thing is that the general economy remains in good shape and my fear is that we could be talking and worrying ourselves into a recession."

Andrew Baker, managing partner at the Liverpool office of Baker Tilly, the firm that carried out the survey, claimed the credit crunch was "really starting to bite" but did add a small note of optimism.

"Levels of pessimism about the economy seem to be significantly higher than they were at the start of the year. Though most are considering belt tightening and are proposing increased vigilance to deal with the tough market conditions, I believe that the diversity within the North West economy will mean the impact is not as significant here in the region."