Managing Your Cash Flow

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Borrowing is like “running through treacle”

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Over and over again we hear from business owners who find their business is being constrained by their lack of capital.

There is now a clear conflict between the policies that the government purports to advance (lending to small business through the EFG, Credit Insurance etc.) and the oft-stated desire for banks to lend more prudently and to build capital in their own businesses. Realistically, you can’t have one with the other.

Week after week, I talk to business owners coming up against a brick wall when they request credit from their bank. It is not a bias that we have against banks. Far from it – we often work with clients’ lenders to advance funding deals. Whatever we read in the newspapers or hear from the Chancellor or Lord Mandelson, the reality on the street does not back up their claims.

A case in point: A small but profitable firm of designers in the East Midlands recently told me of an exchange they had been having with their bank since late summer. An overdraft request that had initially been turned down appeared to come back to life. Paperwork was prepared and re-filed. Two meetings were held. Several letters exchanged. Phone calls back and forth. Positive signals were coming from the bank.

And yet, here we were in early December and still nothing settled. It is as if the whole banking system is working to a kind of “work to rule”. A great stalling of decision-making until the general economy improves. But how long could this take? Of course, no-one knows, but small businesses cannot run on hope alone. The promise of an overdraft won’t get any bills paid. The expectation on raising some working capital is not going to buy any equipment. A colleague of mine described his experiences with capital-raising from banks at the moment as if “you are in one of those dreams where you are trying to escape from something but you are running through treacle!”

It is clear after Alistair Darling’s recent pre-Budget Report that until the upcoming election pretty much everything is on hold. Small and medium-sized businesses are going to have to fend for themselves. The General Election can’t come quickly enough.

Anthony Carty is a director at Clifton Asset Management

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