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Smaller businesses are finding lenders tighter and rates higher, and may face a slowdown in demand from large firms, while customers are awarding themselves free extended credit to help their own cash flow. When the Federation do Small Businesses (FSB) warned that the credit crunch was already beginning to have an impact on small firms' ability to borrow, they were echoing concerns already made by their counterparts in the USA and Australia. The problems of major lenders exposed by the sub-prime mortgage crisis in the USA are already having an impact on small companies, FSB spokesman Stephen Alambritis told the BBC on Monday. Banks, who see small businesses as a higher risk, are not only being more selective, but are attempting to claw back their profits with interest rates of 10 percent or more, a sudden increase of more than two percent. Last week Forbes magazine reported that small companies were already facing problems in the USA. They quoted the professor of finance at the University of Washington's business school: "Banks are going to be more careful about lending to small-business customers. There's going to be tightening." The mortgage crisis in the US is having a particular impact on people who use their homes as collateral, a problem that could spread to the UK, where the huge increase in house prices has enabled many small business people to refinance their companies. "Now loans using home equity to fill the gap have a higher possibility of being turned down," a senior banker told Forbes. The British Chamber of Commerce has warned that smaller businesses also face a potential slowdown in orders, as larger companies batten down the hatches. "If bigger firms find borrowing is to be more expensive or that they are unable to borrow, then they may well decide not to go ahead with investment or at least to defer it,” a spokesman told the BBC. “If this happens, inevitably the smaller firms who fit the units or supply the computers are going to be impacted." In Australia too, there are fears that sources of finance for small businesses will dry up as fast as the drought-hit landscape. And this comes at a time when many small businesses are already dangerously exposed, according to Dun and Bradstreet Australia, which says the average time to pay accounts had stretched to 53 days in June, even before the sub-prime crisis broke. Dun and Bradstreet warned that the full impact of the credit crunch was unlikely to show up until the end of the present quarter. But at 53 days the Aussies have it lucky. Research by Experian finds that in the UK, businesses are taking more than two months - 61 days - to pay their bills, an increase of almost two days since November 2006, and the greatest rise since records began in 1998. Large companies are worst culprits, taking an average of 81.5 days. A 2006 survey found that almost a third of companies with fewer than 20 staff are owed more than 10% of their turnover at any one time Small contractors are usually the first to feel the impact when their large customers decide unilaterally to award themselves extended credit. And we also tend to be the last to complain. A recent web poll by the Better Payment Practice Group found that around 70 percent of businesses worry that they will lose the customer if they insisted on prompt payment (let alone threaten to make use of the Late Payment of Commercial Debts (Interest) Act). This fear was strongest in the smallest businesses. Nick Langley Sep 11, 2007 Email this article Printer friendly page Previous Page
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