The Credit Crunch and the Small Business

Much has been reported in the media about the ‘Credit Crunch’ and the impact on the economies of the world. Undoubtedly, these are worrying times as the size and depth of the problems are still unknown.

Northern Rock has been a high profile loser in the squeeze and almost daily other financial institutions are releasing news in respect of the issues that they are having to address and the amounts they are having to write-off.

However, little has been written about the effect the credit crunch is having on the small businesses which underpin the UK economy. The high-earners in the City of London are suffering and many are losing their jobs but in the grand scheme of things they are relatively small in number.

Small businesses are beginning to experience a tightening of credit and there is no doubt that lenders to small businesses are less relaxed than they were when reviewing facilities or considering new loans. Personal Guarantees with supporting security will be increasingly demanded as the appetite for risk diminishes.

If Banks fail to support small business then businesses will fail and jobs will be lost - the downturn will become a self-fulfilling prophecy. The Small business, even more than the large corporates, needs to take action to minimise the impact of the credit crunch and ensure it is there to take advantage when circumstances change for the better.

In periods of economic uncertainty in the economy businessmen need to be aware of what a turn down can do to their business but, in my experience, a good business does not become a bad one overnight. You need to be certain that your Bank knows how you are doing – never surprise them with bad news particularly in difficult or uncertain economic times.

Accordingly, it is now imperative that you ensure that your banking relationship is sound and that the ‘Bank’ will be there when you need them (even if you do not think you need them).

Would you ever think of relying on one supplier in other aspects of your business?

When do you need an umbrella? You need to be sure that if your bank has lent it to you that it does not take it away from you when it starts to rain!

Have a relationship with your Bank and be pro-active if they do not want to know - get help in finding a bank that really does want to help and be there when it rains.