How would you stimulate the uk economy?

Radiantsoul

HAMISH_MCTAVISH wrote: »

There is plenty of demand, from established, profitable, well run businesses who would like to expand and create more jobs. But they simply cannot access the funds to do so.

And even when banks do offer lending to small businesses, it's often on terms so onerous as to be laughable.

I've seen banks offer business loans at credit card rates. I've seen banks ask for all 4 directors of a limited company to put up their house as security against a 100K loan, despite the fact the value of assets of the business exceeded that loan amount by a factor of 5 and it had no other borrowing . And I've even seen a bank offer to lend a company 100K at a pretty decent rate..... But only if the company or it's directors would put 100K on deposit in the bank at a much lower rate and allow the banks to hold it as security against the loan!

You sometimes really do have to wonder if the employees of retail banks were dropped on their head when they were children, because it's pretty clear that most of those working in business lending are certifiable idiots who haven't the faintest idea of how businesses operate in the real world or how to tell a good risk from a bad one.

Companies have sources of finance other than bank loans available though. They could issue shares or borrow from suppliers, customers, or directors. Most don't because these institutions are not prepared to lend, so why should a bank?

Banks often want directors houses as security as it aligns the directors interest more closely with repaying the debt, rather than pursuing profits(cash is not profit) or turnover(turnover is vanity). As you endlessly note residential houses are a very secure asset, far better than the depreciating and shifting assets of companies.

ChiefGrasscutter

Radiantsoul wrote: »

3. Speed up or cancel the High Speed Rail. I cannot understand why it is going to take longer to build a railway in the 21st century than the 19th.

Principally because when the railways were being built the UK was rather less populated than now - so less people were affected. the UK is currently the most overpopulated country in the EU in people/km2 bar the Netherlands. France for example has the same population in twice the land area. So every time you want to put some infrastructure somewhere there are an increasing number of people living nearby who are adversely affected by its presence - and they protest.
(in 1841 the population of England and Wales was 16 million)

Then there is the health and safety aspect. Quoting from an engineer engaged in building the 1845 Woodhead Tunnel in respect of NOT using a safety fuse for blasting the rocks. He refected on the amount of extra time taken up by having to use/set it and said that he "would not recommend the loss of time for the sake of all the extra lives it would save". In short lots of people were killed building the railways and no one gave a toss.

HAMISH_MCTAVISH

Radiantsoul wrote: »

Companies have sources of finance other than bank loans available though. They could issue shares or borrow from suppliers, customers, or directors. Most don't because these institutions are not prepared to lend, so why should a bank?

Actually, in most of the cases I've dealt with directors are prepared to lend their own money into the company, and are only asking banks to add a bit on at the end.

Most small businesses are not able to "issue shares" or "borrow from customers", and such a statement shows a real lack of understanding of how business works.

I'll give you a recent example....

A small local business was competing with several larger businesses for a 5 year facilities management contract to operate a large companies facilities, cafeteria, maintenance, cleaning, etc. In order to fulfil the contract, should they win it, they needed to show they had funds available to cover 3 months operating costs as the tendering company worked on 90 day payment terms.

All of the bidding companies buy from the same suppliers. The suppliers would not float 90 days of product to the small company, as they know if the other larger companies win they'll be paid without having to do so.

The tendering company would not negotiate on payment terms, as they know the larger companies are cash rich and can afford to deploy capital into cash flow.

So the small local business approached their bank, and the conversation went something like this:

Businessman- "Hi Mr Bank Manager, my company has banked with you for 22 years, you know us, we're a healthy and profitable business looking to expand, and we'd like to borrow 90 days cashflow for the new contract if, and only if, we are awarded it."

Banker- "OK, I see you've previously had finance from us and paid it off in full, that you are able to pay yourself a decent wage, that your personal and company credit ratings are impeccable, and from these accounts I can see that your company is profitable and stable. How much do you need?."

Businessman-"Well, we need around £100,000, but I can put in 40K from my own pocket, so we only need to borrow £60,000."

Banker-" That should be fine, and we'll only charge you 15% interest. "

Businessman- "15%??? That's more than the margin of the contract! You only charged me 6% last time."

Banker-[STRIKE]"Yes, but last time we had competition in the market for lending to small businesses, so we couldn't rip you off and get away with it. Now we can operate as a cartel, so tough !!!!."[/STRIKE] "Times have changed.....

Conrad

Rochdale_Pioneers wrote: »

Great. Lets mandate the banks to start lending again. All sides agree that the lack of credit for SMEs is throttling the economy. We own several banks. It should be far simpler a task than when we didn't own several banks!

You'all keep missing the true reason Banks cannot lend, regulation for example that which forces them to bolster balance sheets.

I deal with lenders daily, they want to lend I assure you, but the FSA and others tie thier hands.


Here's ONE of my enquiries today;

Owns a small business.
Profit £10,000 (he earns far more though) - fantastic lifestyle, villa abroad, Aston Martin.
Wants to borrow an extra £400k taking his mortgage to £1m
House is worth £3m
Wnats to use the £400k to expand his business (to buy the land his unit sits upon, which will allow him to sublet substantially and more than cover the loan cost).
His rental portfolio of 14 homes generates a declared profit of £100,000 pa.

HE'S BEEN OVERPAYING HIS EXISTING £600K MORTGAGE BY £3000 PER MONTH OVER AN EXTENDED PERIOD, DEMONSTRATING AFFORDABILITY.

If he pays the normal (non overpaid) sum on the mortgage, and the sum due on the £400k increase, the total outlay is less than the £3000 (+ the existing standard payment) overpayment he's been making.

Will anyone lend to this multi millionaire?

No.

Why?

Because he doesn''t tick the regulatory boxes on affordability (remember a tiny minoirty get repossessed, so why all the fuss?)


The obsession with tick box regulation is whats holding things back (although things are markedly improving in the wider economy of course).

Conrad

HAMISH_MCTAVISH wrote: »

Businessman- "15%??? That's more than the margin of the contract! You only charged me 6% last time."

..

So tell the regulator to eff off then? That re - capitalising thier balance sheets is not the priority. How will the FSA respond to this?

Neverland

Conrad wrote: »

Here's ONE of my enquiries today;

Owns a small business.
Profit £10,000 (he earns far more though) - fantastic lifestyle, villa abroad, Aston Martin.
Wants to borrow an extra £400k taking his mortgage to £1m
House is worth £3m
Wnats to use the £400k to expand his business (to buy the land his unit sits upon, which will allow him to sublet substantially and more than cover the loan cost).
His rental portfolio of 14 homes generates a declared profit of £100,000 pa.

HE'S BEEN OVERPAYING HIS EXISTING £600K MORTGAGE BY £3000 PER MONTH OVER AN EXTENDED PERIOD, DEMONSTRATING AFFORDABILITY.

If he pays the normal (non overpaid) sum on the mortgage, and the sum due on the £400k increase, the total outlay is less than the £3000 (+ the existing standard payment) overpayment he's been making.

Will anyone lend to this multi millionaire?

No.

It sounds like the banks think he should be taking out an (expensive) commercial loan and not a (cheap) residential mortgage

If he's that rich he should probably be going to a private bank not a high street mortgage provider

This is just a sign of loans becoming more scarce and more expensive, i.e. the normal situation, not the one that prevailed for the decade before Lehmans etc. imploded

Radiantsoul

HAMISH_MCTAVISH wrote: »

Most small businesses are not able to "issue shares" or "borrow from customers", and such a statement shows a real lack of understanding of how business works.

Banks are not in the business of providing equity though. And financing working capital is always going to be expensive as the security is hard to enforce.

HAMISH_MCTAVISH

Radiantsoul wrote: »

Banks are not in the business of providing equity though. .

Just.... wow.

Banks are in the business of lending money. End of story.

What on earth do you mean by "providing equity"?

And financing working capital is always going to be expensive as the security is hard to enforce

There is no need for "security" on every type of lending.

I have over 2 decades experience managing businesses at a senior level, ranging from SME's to multinational companies, and I can assure you that at least since the late 1980's a profitable company with a good trading history would have no problem at all in securing working capital from their bank on production of a contract.

And not at bl00dy 14.5% above base rate!!!

The current absurd behavior of the banks is jeapordising the future of our economy.

People should be outraged.

Not making excuses for them...

Thrugelmir

Rochdale_Pioneers wrote: »

1. Have you checked Northern Rock's default rate? Its very low

NR or NRAM? There's a difference.

4.6% of NRAM's loan book is currently more than 3 months in arrears.

Far higher than the average across all CML members.

Thrugelmir

HAMISH_MCTAVISH wrote: »

I've seen banks offer business loans at credit card rates. I've seen banks ask for all 4 directors of a limited company to put up their house as security against a 100K loan, despite the fact the value of assets of the business exceeded that loan amount by a factor of 5 and it had no other borrowing . And I've even seen a bank offer to lend a company 100K at a pretty decent rate..... But only if the company or it's directors would put 100K on deposit in the bank at a much lower rate and allow the banks to hold it as security against the loan!

The Company may be worth £500k as a going concern. In windup the value diminishes rapidly. As without the Directors there's no business.

Highly unlikely that £500k of post tax profit has been reinvested into the business.