Feeling the squeeze in the crunch

Apr 29 2008 by Sue Scott, Evening Gazette

THE credit crunch has left many small and medium-sized businesses in the Tees Valley feeling the squeeze, according to one advisor who helped two to refinance in a week.

“The banks, nervous about the amount of money they are owed, are requiring more and more businesses to refinance their commercial mortgages - in other words, borrowing against the value of the business,” said Karl Pemberton, a director of Active Financial Services, Guisborough.

While Woolworths might not have had much trouble extending its revolving credit facilities to £385m over four-years in January, small businesses are finding the banks less obliging, he said.

“Any business that does not tick all the right boxes in terms of stagnating property values, reduced profits and poor projections, is finding it very difficult to secure a new package.”

One client - a restaurant and guesthouse, which had been with the same high street bank for 20 years - had been asked to switch from an interest-only mortgage to a repayment one.

“The restaurateur was unable to afford the new payments and it seemed his books were not good enough,” said Pemberton, who managed to arrange a £540,000 loan elsewhere.

Another - a sports retail outlet - was told that the bank would not renew £300,000 borrowing on the business because, following improvements in the way the firm’s accounts were prepared, its stock had depreciated in value on paper.

But Gary Richardson, business development manger for NatWest’s Durham and Teesside area business centre, said: “10 line quote to come”

Craig Iley, head of Alliance & Leicester’s newly opened Tees Valley business centre, said many banks were looking to improve the level of return on existing loans - even if that meant forcing customers elsewhere.

“It’s not something we are doing but we are seeing some opportunities as other banks seek to reschedule their balance sheets.”