Three Strikes and Out

Now I have to say I don't believe in coincidence. It's one of those things that people cling to when there's no rational explanation but this week I've begun to wonder. Three different people, three different business backgrounds but with one common experience - the banks are letting any not money go to businesses in trouble.

When I say trouble I don't mean verging on the insolvent I mean companies who are profitable but who are struggling with cashflow problems at the moment. Well that applies in two of three cases I've mentioned above, the third person I talked to is actually a manager of a worldwide insolvency practice and she says the same.

The first client is a specialist in conference organisation, they have already organised a couple of conferences/exhibitions for 2012 and they need an overdraft facility for three months of the year. The bank have said that they can't have an overdraft, they can have a loan with a draw down facility. For the privilege of this debt conversion they will have to pay an arrangement fee, this will vary between £750 and £1200 and the interest rate they will be charged will be, well have a guess, todays BOE base rate is 0.5% and generally if you loan money to a company you charge around 2% above base. The bank in question want to charge 12%! How can that help anybody.

The second client is a builder. He's a builder who specialises in conversions and as such has experienced a growth in work over the past year rather than a downturn. This is because people who eighteen months ago might have been thinking of moving have decided to use the equity in their current properties and build upwards or outwards rather than moving on. He is experiencing cashflow problems at the present, if you think this one through there's a horrible irony why, he phoned his branch to enquire about a short term overdraft and was turned down on the phone.

Rosemary works with large companies, trying to keep them going until a buyer can be found for those who have proven track records but are struggling with problems beyond their controls, or assisting with pre-packs and buy-backs. These are terms used by insolvency practitioners to describe the most common methods of helping companies come back 'from the dead.' She told me tonight that getting money out of the banks is like banging your head against the wall.

So where is the money? It is almost exactly a year since Gordon Brown asked the EU to assist with a £12 billion fund to aid small businesses across Europe but as far as my experience goes you have more chance of Thierry Henry controlling the ball with his feet than getting your hands on the money.

Changing tack here slightly and we are approaching the end of the HMRC's year long season of goodwill. This was the Government imitative announced last Autumn to help those companies struggling with cash flow problems and therefore having trouble meeting their PAYE and/or Corporation Tax liabilities. This was one of the few recent Government Initiatives that hit the sweet spot straight away, in the first six weeks following its announcement some 20,000 businesses deferred payments totalling £350 million. Fast forward to where we are now and somewhere in the region of 150,000 businesses have taken advantage of this scheme. Now, at a time when uncertainty over the economy still dominates most conversations I have with clients ,the scheme is to close, on 31st December to be precise.

It won't disappear completely but the informal arrangements of the last year, helped by the dedicated phonelines, will be replaced by a more rigorous (whatever that means) check on the business. The reason for the closing of one door and the slight opening of another is obvious, Alistair Darling's petty cash tin is bare apart from a couple of IOU's, a paperclip and a stamp with a picture of Prince Charles and the 'people's princess' on it. Now one argument in favour of the scrapping of the old 'here it is come and get it' approach to things is that it will be better for the economy but I struggle with that one. If I was lending the money, which I am doing as a taxpayer, I quite like the idea that I will get something little and often rather than nothing at all which is likely to happen when HMRC pursues businesses that do not have the means to pay and are forced to close. Opponents of the arrangement also point out that a lot of businesses who have benefited from the scheme were always doomed to failure anyway and that the removal of this safety net means that they will simply crash and burn, it's an evolutionary thing.

One thing I can guarantee here and now is that in 2010 there will only be one group of winners from this scheme closing, Insolvency Practitioners. And they aren't exactly short of work at present are they?