Thursday, October 30, 2008

Banks - NOT a friend to small business.

This BBC report is so far removed from reality that its difficult to know how to respond. The idea that the Chancellor or the high street banks are intent on helping small business is laughably untrue. The reality is that banks are so desperate to make some money to fill the huge black hole in their balance sheets that their own irresponsibility created , that they are milking business for every penny and cent they can.

The owner/manager of one ' small to medium' Welsh business rang me this afternoon. He has a borrowing facility of around half a million, but currently borrows about a third of it. His current terms are less than one and a half per cent over Base Rate (around six per cent and likely to fall) - and only on what he borrows. Unfortunately, the letter formalising this facility was inadequately drafted, and is being redone. His bank is taking the opportunity to revise his terms, and is insisting on three percent over the LIBOR rate (The London inter-bank offered rate - which must make it around nine per cent in total) on the money actually borrowed - and one and a half on the rest of the facility. Yes, that's right. Around six per cent on money that is not actually being borrowed. And at the moment, its a question of take it or leave it. I've heard the same sort of story from others.

You would be very surprised to know which bank this is. When the final agreement is signed off, I will make the details known.


Dr. Christopher Wood said...

Shocking but hardly a surprise that a bank would act like that against small businesses and against the national interest. The government is too soft on the banks. Helping them while the banks purr 'promises'.

penlan said...

Not a one off,I'm afraid.I was talking to a friend last week who had the very same thing done to his business-a charge on the unused (and in his case therefore most) of his business overdraft facility.

The private sector in Wales is too small anyway and now largely comprises "SME"s (to use the jargon).This could make the difference in a business' survival in a downturn.

Glyn Davies said...

penlan - It makes me very angry. These bankers, having completely screwed up, then force hard working small businesses to re-line their coffers - probably so that they can enjoy rich pickings all over again. And they know they've got us by the g******. And it will not be one bit better, probably worse, now that our banks are part nationalised.