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How does the credit crunch effect small businesses?

Some business owners may have read about the so called “credit crunch” and wondered how it may affect them here in the UK.

This week the reality of the situation hit home when the largest commercial mortgage lender for small business, Commercial First were forced to close their door on new applications, stopping applications in the final stage of completion.

The reason for this hard stop wasn't instability with Commercial First accounts.

On the contrary, they are a profitable company with a relatively low sub-prime exposure. It wasn't bad management on the part of Commercial First either.

This lender has won awards for their service levels and this is a reflection on the excellent management team the company has in place. The real reason is that the credit lines Commercial First had in place from investment banks had been pulled! It's that simple.

Lack of money in the banking system means no new loans, and the pull-back from completing these new transactions was the result.

Where Does That Leave New And Cash-Based Businesses?

With Commercial First currently not receiving new applications this means that self-certified commercial mortgage options are radically reduced.

There are still some lenders who will lend on this basis, but they are cherry picking their clients, and not offering the same Loan to Values (LTV's) as Commercial First used to offer.

Options for new mortgages or commercial remortgages for the fledgling small business, cash-based business, or owners with small amounts of adverse in their credit history are now significantly reduced and will require special attention.

What can you do now?

In recent months I have been formulating alternative financial solutions for the body of companies who now find themselves left with very few options.

Whilst there is money in the market, albeit on reduced terms, there "are" options available.

Business owners should be looking at formulating business plans that include assumptions as these new lenders typically require much more company data to aid them in their risk analysis before accepting the applications.

In many cases these new lenders will also request company accounts, and other such supporting data.

If you would like help to source not only commercial mortgages but other forms of business finance please call me or my team of Consultants at TAL Commercial on 0845 643 0260, or visit our website at www.tal-commercial-mortgages.com.

All's not lost, it's just a more interesting journey!

Rosie Beasley is a Director at TAL Commercial. She has 20+ years in the financial services industry and has been involved in all aspects of mortgage lending – underwriter to owning her own Mortgage Brokerage.

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