Is another credit crunch around the corner?


Peter Skelly, Manager, Rural Services, Yeovil


When we all thought the worst of the credit crunch may be over, another may well be on its way. Are the banks now addicted to government support? This has provided them with over £150 billion via special liquidity schemes and over £100 billion more raised through government backed bond issues.


In 2012 these two schemes are expected to come to an end. There are also estimates that at least a further £400 billion of wholesale debt is falling due around this time, as a result of the large scale lending of six and seven year money back in 2005-7. The US is expected to have an even greater refinancing requirement in the next two to three years.


Whether all of this finance will be renewed is one question, but for those deals that can be renewed, will the borrowers be able to afford the high interest rates associated with a tightening of credit supply?


While we appreciate that there will be a number of clients who are not looking to grow their business and holdings significantly, those that are and also those that are reliant on overdrafts and bank funding, might think about securing the availability of finance now for the next 2-3 years. Doing so could enable some bargains to be had if access to credit is even more difficult going forward.


Although bank arrangement and overdraft facility fees have increased, when the time for renewal of the facilities comes round, it may pay dividends to


negotiate with the bank manager a two or three year deal, rather than simply agree to another annual review date. The extra cost up front may turn out to be a wise investment and perhaps there is scope to negotiate on the fees paid for a multi-year deal which might fix the interest rate or the margin paid.


Land owning farmers should find themselves in a particularly strong position when trying to negotiate such deals. Farming seems to be one sector able to access credit relatively easily and at reasonable interest rates where land is available as collateral (although we note that the banks’ margins have opened up considerably as they try to recoup some of their losses and shore up their balance sheets).


With the potential tightening of credit and the reduction in capital allowances for 2012/13 (the annual investment allowance is reducing from £100,000 to £25,000 from April 2012 with writing down allowances are reducing again from 20% to 18%) our clients should be considering their investment plans for the next two to three years very carefully. Bringing investment forward into 2011/12 to make use of the higher capital allowances could be worthwhile, but is only possible with sufficient finance available and at reasonable rates!


Clients should contact us for assistance with the planning of capital expenditure, maximising the reliefs available and assistance with budgeting and forecasting or demonstrating forecast borrowing requirements to their bankers. We can also assist with the review of the security being provided to bankers and maximizing the tax efficiency of borrowings.


3


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16