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Ash4781

Firms Go To Credit Limit To Stay Afloat

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http://www.guardian.co.uk/business/2008/jul/27/banking

Hard-pressed companies across the country are scrambling for cash, putting extra pressure on banks' already battered balance sheets, according to City insiders.

Just like consumers using up their overdraft limits to see them through a rough patch, Britain's businesses are drawing down credit deals, which were sometimes arranged months or years ago, to bolster their finances.

Bank of England data for May, the latest available, reveals that the cash balances businesses hold with banks have collapsed, falling at an annual rate for the first time in more than a decade, confirming that companies are grasping for funds. 'Some of these credit lines were arranged so long ago, we'd forgotten about them,' one banking insider joked.

Andrew Harris, head of the working capital team at accountancy firm Deloitte and Touche, says he has seen a sharp rise in inquiries from organisations wanting advice on how to patch up their finances over the past month. 'There's been a sea change in terms of some of the conversations we've been having. Companies have very quickly got to the point where they're saying: "We need to do something."' He said distress had 'cascaded down' from construction and financial services to a range of other sectors.

The demands for extra cash from corporate customers are intensifying the fierce pressure on banks' own finances. Fears for the health of financial institutions on both sides of the Atlantic mounted last week, after US bank Washington Mutual was rumoured to be at risk of collapse.

Graham Turner, of consultancy GFC Economics, said the woes of the American banking sector were soon likely to be reflected here. 'We're all feeding out of the same pool of rapidly disappearing capital,' he said. 'It looks very worrying in the States but, ultimately, that leaks into the UK.'

Britain's banks are being urged by the Financial Services Authority to play safe and hoard liquid funds; but at the same time, the Treasury would like them to step up mortgage lending, which has slipped to record lows, exacerbating the downturn in house prices.

Former HBOS chief executive James Crosby is preparing to publish the interim findings of his government-commissioned review into re-opening the blocked mortgage securitisation markets this week. Lenders have been unable to sell on packages of loans, limiting their ability to write new mortgages; but he is expected to offer few concrete solutions until his final report in the autumn.

Chancellor Alistair Darling hopes to use his autumn pre-Budget report to announce a package of measures to prevent the housing market slowdown hurtling out of control. Plans being drawn up include increasing the tax-free ISA allowance for first-time buyers saving up for a deposit.

Rapidly disappearing capital

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Chancellor Alistair Darling hopes to use his autumn pre-Budget report to announce a package of measures to prevent the housing market slowdown hurtling out of control. Plans being drawn up include increasing the tax-free ISA allowance for first-time buyers saving up for a deposit.

Well that ought to do it. Crash canceled everybody - nothing to see here.

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Plans being drawn up include increasing the tax-free ISA allowance for first-time buyers saving up for a deposit.

Might be good for the STR fund. How they decide whether you are a first time buyer will be interesting though.

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This is nonsense.

Any credit deals will be already on the banks books.

The danger now is that banks WITHDRAW credit as business cheques come in.

This I know for certain happened in GC1.

It was DEATH for many businesses.

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There was a long post last week on this by jonpo

http://www.housepricecrash.co.uk/forum/ind...=82608&st=0

I think I get it, it's in no way sad, problem is as soon as I myself (you've probably found this as well) do this kind of thing it seems to be in the papers the next day as news.

Keep on investigating :)

Edited by maxwell

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This is nonsense.

Any credit deals will be already on the banks books.

The danger now is that banks WITHDRAW credit as business cheques come in.

I think we're seeing a lot of 'use it or lose it' draw downs going on. This has been happening with companies in the States for a while and UK firms are just catching on to the fact that they'll be very short of cash soon too, even if they're not strapped just yet.

It started with the HELOCs that were so popular in the US - where people used the their houses as ATMs to squeeze the last bit of credit from the property price boom. People assumed they had e.g. a $75,000 line of credit and were well placed to weather the credit bust, then letters begin arrive saying their unused HELOC was cancelled. When others heard this they immediately drew their full whack out to ensure it would be available when things got bad. Then the banks started doing the same to company credit lines so CFOs grabbed whatever they could before their credit lines were cancelled too.

Now it's the UK's turn (we're always 6-9 months behind the US).

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It's happening again, just like last time.

Bank managers will sit around first thing in the morning with a pile of cheques that can not be met by the account holder. They'll choose to bounce a cheque that will cause severe embarrasment and difficulties for a business. It means that the businesses will go bust faster meaning the bank's liability will be a short-term one rather than being dragged out as the company goes through its death rattle.

If a company uses its overdraft for more than 3 months out of the year, I'd be very worried, especially with a sub-£1m turnover.

To any business owners here, we had our shock last September and October. We let all the staff go, negotiated with long-term suppliers to reduce our bills and found every way possible to cut back. It saved us. If we hadn't, we'd have run out of money in February or March. Make provisions now.

As a certain former member used to say, "protect yourself!" :ph34r:

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  • 399 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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