It’s tough out there
We were shocked to find out recently that small businesses are being charged a 15.8% interest rate on their overdrafts by banks.
In recent times small businesses have become more and more dependent on overdraft facilities. Because of risk aversion and illiquidity in the banking system, small businesses have seen huge increases in interest rates charged.
Somebody who has been doing some work for me at home in London told me last week that she had been called in by her bank manager about her £5,000 overdraft. The meeting would be actually to withdraw her overdraft facility although her business is still doing reasonably well.
She did indeed see her bank manager and her £5,000 overdraft was changed to a £1,000 overdraft with the rest being offered as a business loan. The result is that she is being charged 17.54% - a margin of 13.04% over the current base rate.
For thousands of small businesses up and down the country these interest rates are unsustainable. If these rates of interest continue we will see a bloodbath in the small business sector.
It is all very well for the government to talk about trying to help but the evidence so far is depressing.
How deep will the economic downturn be? As City AM reported yesterday, the transportation of raw materials is monitored by 26 shipping routes and is a good indicator of trade flows and future economic activity. It has collapsed by 88% since May. Much of this is to do with the weaker export picture from China.
Does anyone remember that Labour song ‘Things can only get better?’
Indeed.