SMEs next to feel the crunch?

Unless you’re a leveraged finance banker, or a debt fund manager, you may well have been reading the endless stories about the credit crunch recently with a certain sense of detachment. So what if a few City boys and girls take a hit to their astronomical bonuses, you may have thought.

Last Updated: 31 Aug 2010

Unfortunately, the problems of high finance have a nasty habit of trickling down throughout the whole economy. Today the Federation of Small Businesses has expressed concern about the knock-on effects for their 200,000-strong client base, who it says are going to find it harder to borrow money at cheap rates.

With so many loans still needing to be refinanced, banks have been hoarding reserves in case they end up having to cover these vast sums from their own books. As a result, they’ve been reluctant to lend money to anyone – let alone the more risky smaller businesses. As interest rates start to creep up, this could mean more business failures as companies find it harder to service their debts.

When the margin between success and failure is so small, as it is usually is for small businesses, this is the last thing entrepreneurs want to hear.
Even those of you with enormous mortgages, who have seen the credit crunch put a welcome brake on rising interest rates, may not be laughing all the way to the bank. Lenders are now starting to raise the rates on newly-issued mortgages, so by the time you come to re-mortgage, the picture could be a lot less rosy.

On the plus side, there could be bargains to be had amid the credit crunch. Magazine group Emap is apparently so keen to flog itself that its own banks are willing to lend the money to potential buyers...

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