Credit crunch on business starts

[Sysman]

WHat I predicted here seems to be starting.

The banks' debts are your problem

"Last week, an old friend who runs one of the few manufacturing businesses in north London told me about an unpleasant ultimatum from his bank.

He has about £500,000 of customers' credit-card orders outstanding at any one time. Now he has been told that he must pay £500,000 into an account where the credit-card company can see it, or write a personal guarantee for £500,000, or stop taking payment by credit card.

As nine in 10 of his customers pay by credit card - and might shop elsewhere if asked for cash - my friend is now considering laying off staff."

[NoddY]

Which leads to unemployment. And so it goes on.

[King Cnvt]

But house prices will still go up.

[Dean]

"Last week, an old friend who runs one of the few manufacturing businesses in north London told me about an unpleasant ultimatum from his bank.

He has about £500,000 of customers' credit-card orders outstanding at any one time. Now he has been told that he must pay £500,000 into an account where the credit-card company can see it, or write a personal guarantee for £500,000, or stop taking payment by credit card.

As nine in 10 of his customers pay by credit card - and might shop elsewhere if asked for cash - my friend is now considering laying off staff."

Of course, this is a friend of the journalist so the journalist has, no doubt, fully investigated the reasons for the bank taking this step, such as incidences of credit card fraud, cashflow problems or lack of collateral, etc. before writing up the story.

FWIW, I think you're right in the other posting you've referenced but stories such as this Telegraph piece are not worth very much without further information. I read a piece in the Grauniad about how the banks were artificially keeping the mortgage market afloat in order to prevent a recession and that house prices would tumble in about 6 months when they couldn't prevent it any longer - and that was about 5 years ago now.

[chubba]

The best thing is that all this leads to uncertainty and will stop people buying houses in the hope that prices will drop or those close to the line will not be able to get a mortgage. BTL'ers who are close to the line may go under or put houses on the market, likewise those who took on low fixed rate mortgages and have now got into difficulty with the rate rises. Was it something like 400,000 odd fixed rate loans to hit base rate before the end of the year? I can kind of see the pack of cards wobbling, not sure if will tip yet but have been saying houses can't keep going up like this for 5 years or so! Have sold here and going into rented, not due to markets looking wobbly, just can't get a house where we want, so a crash now would be really nice...

Just seen Northern Rock has asked BOE for assistance too, this could knock shares tomorrow.

[Sysman]

Of course, this is a friend of the journalist so the journalist has, no doubt, fully investigated the reasons for the bank taking this step, such as incidences of credit card fraud, cashflow problems or lack of collateral, etc. before writing up the story.

You have a valid point, but I remember so many similar stories the last time around, that it rings true to me.

Very few of those stories got as far as the press. You had to be working in the small business community and keeping your ears and eyes open to learn what was really happening.

[Sysman]

Bump

Northern Rock customers withdraw £1bn

Oh sugar...

[Gonzo]

You have a valid point, but I remember so many similar stories the last time around, that it rings true to me.

Very few of those stories got as far as the press. You had to be working in the small business community and keeping your ears and eyes open to learn what was really happening.

Indeed. In 1994 I was working for a small software company (basically it was a one person operation and I was helping out as a junior programmer). The bloke running it had a £30,000 overdraft facility (secured against his house) and was using nearly £20,000 of that. Then one day his bank wrote to him and told him that they were reducing his overdraft facility to £20,000. He knew better than to try and run the business with no working capital so he packed up and went back to contracting.

So I was out of work, although I might argue that I was spared a career as a code monkey

These are the stories that don't make the press but ripple throughout the small business community which ultimately props us all up even if we are working for the big boys.