The Credit Crunch and the Role of the Broker

A new survey conducted for the CBI to the owners, chairmen and directors of 500 SME’s has highlighted concerns regarding the possible availability and conditions of future credit.

Whilst the results revealed that only 12% of firms surveyed had already experienced a deterioration in the availability of capital, 22% expected some constraint over the next three months, and 31% over the next 6-12 months. Overall, some 35% are either experiencing, or expect to experience, some deterioration.

According to the survey one in five (19%) of the firms questioned said credit tightening was currently affecting or was expected to affect business decisions and plans. Of this fifth, 34% said they are cutting output or stock levels, 29% are trimming capital investment (and a further 25% postponing investment plans), while 26% are cutting jobs or recruitment plans.

The main worries concern the increased cost of borrowing together with more stringent lending conditions. Concerns regarding the availability of new finance and the withdrawal of previous credit lines were less frequently sited.

Following the credit problems in the US, we have already seen several lenders in the UK affected, with companies such as One World Leasing pulling out of the marketplace and cancelling all approved facilities that had not yet been drawn down.

Traditionally, many businesses have felt that Brokers were primarily concerned with obtaining funding for companies who struggled to obtain the credit themselves or only operated in very specific markets. Whilst this is an area where brokers may be able to assist, they are also often able to improve the terms offered by many high street lenders, through the sheer volumes of business they introduce together with their access to many lenders not widely known to the marketplace.

In his book “Anyone can do it”, well known entrepreneur Duncan Bannatyne says “Shopping around, I got a particularly good deal from one particular lender as a broker i’d used had told me they were desperate to get into the UK commercial market. I might have preferred not to pay a broker’s fee, but it worked out cheaper to pay for his knowledge, and i’ve often found that specialist expertise can be worth the relatively small investment it requires” (Note: Many brokers don’t in fact charge their clients a fee as they earn their money from their panel of lenders on a volume related basis.)

Mike Boss is the Managing Partner of The Boss Corporation, one of the UK’s leading independent provider of IT finance. The Boss Corporation specialize in the provision of IT finance, including Software transactions. They also work with Software Houses and Resellers enabling them to offer a bespoke client financing option.