Leaving aside the Government’s definition of a small
business – i.e. a business with a turnover of less than £10M and less than 50
employees – it would now appear that people who have mortgages are equally as
important and therefore cheap mortgages are also included. Put yourself in the position of a bank which
has the chance of cheap Government money if it lends to either a small business
or a small potential homeowner.
In the first instance you are depending on judging
whether someone has a good business plan, a solvent business and an excellent
reason for wanting the money – but nothing else in the way of assets. In the case of the possible homeowner you can
set the entry level as far as the deposit is concerned and thereby the
percentage of the total value of the house at what you might regard as a
reasonable level – commonly 25% (thus a 75% mortgage to value). What this means of course is that you collect
mortgage payments against this in the hope that the mortgagee’s circumstances
do not change; if they do and they can no longer afford the payments you then
repossess the property and put it up for auction with a reserve of 75% of what
it is worth because that is all you need to cover your loan.
Where would you lend the money?
So let’s not be negative about lending to businesses,
let’s be positive and not just knock the Government but offer an alternative.
The main reason the banks will not lend is because of
the situation above. There is not as
much security lending to a small business and therefore they might lose their
money. In view of all the criticism they
have had in the past about bad debts they are wary of incurring more, so,
better safe than sorry, no lending without assets to back it so we can recover
our money.
Why doesn’t the Government, instead of printing money
to lend cheaply to banks where the best bet is that it will help the building
industry, just say, lend if you think the business is properly run and has a
good business plan and, if it goes wrong we will not blame you for lending the
money and will make the deficit good. The
Government then becomes the small businesses’ security. I am not saying that they can just give out
the money without looking at the proposition properly and they would have to
prove they had done so to get a BIS refund but we need innovative thinking if
we are going to solve this problem.
What do you think?
THIS BLOG IS FROM ONE OF COLBEA'S BUSINESS ADVISORS - We welcome your feedback.
No comments:
Post a Comment