Lending to UK business weakest on record in July -BoE

mewbie_2

Can't see the iceberg any more Captain, I think we're safe.

Doozergirl

inspector_monkfish wrote: »

but what if a profitable business is only struggling, because all the failing businesses are not paying it the money they owe it...

And what if a profitable business wants to buy the book of a failing business?

When business's fold, there is always going to be some slack that is going to be taken up by competitors, there has to come a point at which other businesses expand to take that on.

Businesses often need to borrow to expand otherwise they'd miss opportunities if they constantly had to wait until they'd raised funds. It's almost naive to say that no good business needs to borrow in a recession or that only bad businesses borrow. Banks do lend money to businesses based on a perceived risk, now the criteria is much stricter but they are able to lend where the perceived risk is a good one.

Even banks borrow money from savers to lend to others in order to make more profit. That's the basic model of it. If they're not being wreckless then it's a good model.

Thrugelmir

inspector_monkfish wrote: »

but what if a profitable business is only struggling, because all the failing businesses are not paying it the money they owe it...

In that case the profitable business will fail itself. Credit management , high dependence on a small number of customers etc are all part of running a business.

Banks aren't there to prop up business and take all the risk. The owners/shareholders need to find additional working capital as well.

Ultimately its our savings and deposits that are being lent by the banks.

We seem to have developed a culture where we want high returns without personally taking any risk.

inspector_monkfish

Thrugelmir wrote: »

In that case the profitable business will fail itself. Credit management , high dependence on a small number of customers etc are all part of running a business.

Banks aren't there to prop up business and take all the risk. The owners/shareholders need to find additional working capital as well.

Ultimately its our savings and deposits that are being lent by the banks.

We seem to have developed a culture where we want high returns without personally taking any risk.

oh, righto.....

so if a sucessful business wants to grow and get stronger by gobbling up smaller failing businesses, thats just tough now is it ?? They can no longer do this?

Thrugelmir

inspector_monkfish wrote: »

oh, righto.....

so if a sucessful business wants to grow and get stronger by gobbling up smaller failing businesses, thats just tough now is it ?? They can no longer do this?

Why buy a failing business? Employees are protected by TUPE, all finance obiligations remain due, suppliers need to be paid.

Easier just to approach the customers and sell to them, after your competion disappears from the market place. Then borrow and invest to expand ones own capacity. Far more cost efficent.

Dog eats dog as they say. Markets are only of a limited size on a regional level. There is only so much business out there.

Pennywise

In the past, banks were never the only source of funding for business. Shareholders invested and hoped to make their return through dividends. Banks were traditionally only involved to bridge gaps (perhaps where shareholders didn't raise quite enough) or for relatively short term funding, i.e. for working capital, to buy stocks, etc.

The 1980's and 1990's saw a massive change to where "debt" became the norm. Partly for tax reasons, but partly because it became so easy to get bank loans and overdrafts. The banks started to lend to anyone - especially if you only wanted a small loan or overdraft they did very little in the way of critical analysis of your plans - if you could tick their boxes, you got the money. A lot like the way personal finance went with interest free credit and credit cards for virtually anyone with a pulse.

We're just seeing a swing back to historical levels. Banks ARE lending - they're lending to sound businesses with good track records and solid future plans. They're not lending to the more "amateur" type of business or those with less than perfect credit histories because of their risk assessments. Good solid businesses have nothing to worry about - they'll still get their funding if they can prove their case.

Sadly the days of people starting a business by getting a bank loan for a fictitious car and a cash advance on a credit card are long gone - thank goodness. Quality is far better than quantity. I'd much rather have 1,000 good quality businesses with good prospects than 100,000 amateurs.

Business life has changed forever (or until the current crisis is forgotten) - we have to work with what we have now.

inspector_monkfish

Thrugelmir wrote: »

Why buy a failing business? .

To pick off the best parts, and ditch the parts that are making it fail, and get it cheap at the same time....

Thrugelmir

inspector_monkfish wrote: »

To pick off the best parts, and ditch the parts that are making it fail, and get it cheap at the same time....

To restructure a business fully takes a lot of management time. If you are referring to Corporate level thats different to smaller business.

If a business fails what would you regard as it best parts?

Top salespeople, Top Engineer, Top 20 customers.

After that whats left?

Do you know what TUPE stands for?

inspector_monkfish

Thrugelmir wrote: »

To restructure a business fully takes a lot of management time. If you are referring to Corporate level thats different to smaller business.

If a business fails what would you regard as it best parts?

Top salespeople, Top Engineer, Top 20 customers.

After that whats left?

Do you know what TUPE stands for?

well that would depend on the nature of the business i suppose


no i don't, some kind of employee union i guess

Thrugelmir

inspector_monkfish wrote: »

well that would depend on the nature of the business i suppose


no i don't, some kind of employee union i guess

TUPE is an acronym for ’Transfer of Undertakings (Protection of Employment) Regulations 1981.

In simple terms I take over the Company you work for.

As an employee your contract of employment stays the same. Pay, holidays, bonus, pension etc etc. Your employment is also regarded as continuous from you joined your original employer. So this affects notice period, redundancy etc. O

I am unable to sack you or single you out for redundancy.

Yet you may earn 20% more than a person doing the same job in my organisation or receive 2 weeks more paid holiday.

So little incentive to take over a failing business. Better to buy it after its been put into administration or receivership and restructuring has already taken place.