BBC 1 Panorama reports on banks' attitude to SMEs

Panorama sent Theo Pathitis of Dragons Den fame out to visit several businesses that were feeling "credit crunched" by their bank either on existing arrangements or looking to expand their business....

Panorama - Credit Where It's Due - BBC iPlayer

A coach operator with good trading background won a tender for a £2M pa contract which would have needed 6 new coaches and created 10 new jobs in Bournemouth. The visit to the bank not only resulted in a refusal to fund the expansion but a demand that their existing overdraft (OD) of £300,000 be reduced to £160,000. Such was the nervousness of the Directors about their position that they wouldn't risk naming and shaming their bank for fear of a furthe cut on their OD.

Various small businesses where their bank was charging fees for being beyond their OD facility but wasn't crediting their account with debit card transactions through a terminal link for 5 working days....enough said

A manufacturing company in London which produces light switches, plugs etc had slimmed down and was looking for working capital having never borrowed in 70 years  to cover the lead time from manufatcure to being paid by wholesale distributors who are slowing up on payment terms. Theo suggetsed approaching 5 banks under the EFG (the gov'ts successor to SFLG) , three of them simply sent the papers back so the statement from the BBA today rings a little hollow ......

Commercial mortgage news - Lenders willing and able to provide business loans

 

There are lenders looking to support growing and successful businesses - and they are not all on the High Street - we will get you indicative terms promptly - phone us on 0845 3456788 or visit our commercial mortgages and commercial mortgage calculator pages to find out more.

Does this story remind you of the last recession?

Recessions bring out the worst in the banks and the current crisis has brought out some bizarre market positioning and message to business borrowers of HSBC...

In the last major recession (1991-1993) banks did not have the sophisticated borrower analysis that is available to them today. It was quite common for Head Office Credit Departments to decide that they had an aversion to certain sectors and then send out instructions to their regional and commercial departments to haul in overdraft facilities to reduce exposure and thereby bring about more busines failures in that sector. When challenged on the wisdom of "targeting" a particular sector, they would cite the recent evidence of business failures aggravated by their actions as a good reason for their actions.

Two sectors that operate on particularly thin margins and are often seen as lead indicators of economic slowdown are transport and print, where the former have had to juggle with the highest fuel costs in Europe and the latter where there is always too much capacity so operating margins can evaporate overnight ! In the last recession we could see a broad approach being applied to these sectors regardless of strength of borrower.

So you would have thought that advances in technology would allow a more measured approach based on the risk that each borrower business represents in any sector ?

And of course which is the one UK Bank that has thus far avoided raising extra capital or become part owned by the Gov't ? 

HSBC have made it abundantly clear that they do not wish to lend on property led transactions even where the borrower is a trading business already banking with them..........I could understand that they have no appetite for new commercial property risk where tenant profile especially within the retail sector can no longer be taken at face value. But to either reject a borrowing request or limit exposure to 50% of purchase price (just one recent example in the engineering sector) to a very successful trading business is non-sensical.

Typically a small industrial unit would see a yield of 7.5% today so paying a commercial mortgage at Base + 3% would be some 3% to 3.5% cheaper than renting provided the deposit by the borrower of normally 25% or 30% doesn't leave the business short of working capital in the short term. But asking the business to inject  50% as in the example above would most probably strain the working capital of the borrower to an unnecessary extent and thereby jeopardise the business itself.

We are seeing more evidence of a broad approach being taken again in this recession because quite simply the banks are short of capital and really need to get loans back in .........If your bank is starting to put pressure on you to payback in part or all of the loan you have with them, we can help - there is still commercial mortgage money out there !!!

Allsop Auction on Wed 11 February produces better results

The latest commercial property auction by Allsop has seen an improvement inactivity with achieved yields down from 8.3% in December to 6.7% on the 18th of Feb 2009.

Total Realisation - £51.7m

90% of lots offered sold

Average Retail Yield - 6.7% (8.3% December 08)

Average Lot Size - £950,000 (£580,000 December 08)

Largest Lot - Lot 27 Bradford £4,740,000

The first commercial auction of 2009 took place on Wednesday 11th February in a packed room and concluded with a remarkable 90% success rate, a very encouraging start to the New Year. As reported following our December auction, there remains a strong appetite for property which, when correctly priced, stimulates competitive bidding. This auction, on average, generated sale prices some 15% above reserves.

As expected, with interest rates at such low levels the cash rich investor is turning to property to take advantage of higher returns. Good quality lots sold particularly well, leading to a hardening in the average retail yield from 8.3% in December to 6.7%. 10 lots achieved yields below 6%.

There was a wide range of private buyers at the auction, including a strong overseas contingent. Interestingly, we also saw a number of 'old faces' returning to the auction room, seeking to take advantage of market conditions.

Successful vendors included British Land (who sold 6 lots raising £14.015m), PRUPIM and ING Real Estate Investment Management, as well as a leading pub operating company who offered and sold a portfolio of 8 retail and leisure investments raising £3.177m.

Highlights included:

·  Lot 5 Ripon, let to Edinburgh Woollen Mill sold for £885,000, 6.2% net initial yield, off a guide of £725,000

·  Lot 6 Soho, let to Spirit Managed Pubs sold for £2,220,000, 5.8% net initial yield, off a guide of £1,800,000

·  Three properties let to HSBC Bank were sold prior to the auction, achieving strong prices with net initial yields down to 6.1%.