Do we REALLY need banks to be lending more?

When dwelling on the NAMA issue it’s easy to go around in circles. But the main argument I hear in favour of NAMA is that we need the banks to start lending to businesses again. Sounds fine and logical, as businesses need working capital to keep running and to keep people in jobs.

But lets break it down a bit. How much of any issue is this really? We’ve seen many high profile companies close down operations, but how many have cited lack of finance as a reason? I’m thinking of layoffs in Dell, Intel, Ericson, Element 6, even Thomas Cook. Lack of finance doesn’t seem to be the problem here.

If banks are lending less, why is that a problem? Is that not the logical response to realising the errors of their previous lending policies? If a big chunk of bank lending a few years back was made to finance property development, property speculation, and land banks, then shouldn’t we be satisfied to see this lending drying up?

Regarding vunerable small business, how many of these would be unviable anyway? I’m thinking of builders suppliers, transport companies carrying building materials around the country, stonemasons, outlets selling kitchens and bathrooms. I’m thinking of little start up companies offering financial services, legal services, architectural services, consultancy services, printing and media and marketing services (we’ve all seen the brochures) all to the construction or construction related sectors.

Are these the kind of small businesses that are doomed anyway that NAMA is supposed to help provide a lifeline to?!?

I never got that argument either “Credit is the lifeblood of the economy”

Well maybe up to a point, but too much credit can poison the system by distorting the markets and allowing unviable businesses to trade longer and ammass more debt before they collapse (and potentially bring other viable businesses down with them)

You’ve obviously never tried to run a business.

From working as an FC of a small indigenous Irish business I can tell you that credit finance is absolutely vital. You need short term credit (such as an overdraft) to smooth out fluctuations in cash flow and longer term finance in order to expand/increase productivity (like investing in new kit).

I left that company around 2 years ago with healthy finances but I heard last month that their bank had refused to renew their overdraft facility. Now, debtors are getting harder to collect and creditors are putting them under huge pressure to pay early. You can ride out this type of cash flow issue if you have short term credit facilities but now all they need is one bad debtor and they could miss a salary run. This is a profitable business which is having the life squeezed out of it by a bank.

@leeonardjos, do you think that Dell, Intel, Ericson et al raise their working capital through Irish banks?

They really mean opium to the masses.

Of course credit is important for the economy. People need to borrow money to set up or expand businesses, generating jobs and wealth.

My particular problem with credit comes down to the individual. People who use credit on a weekly basis, making purchases using credit cards, rather than using savings.

For genuine viable businesses who can’t get credit, surely there are other solutions other than the taxpayer paying 90bn (or whatever the final bill will be) to buy development land.

As a poster above referred to, bigger companies can access credit from international sources, possibly even foreign banks operating in Ireland.

I would be much happier to set the government set up a fund to supply working capital credit to viable small Irish firms who cant access international credit. Administer it through the IDA or Enterprise Ireland for example. You might say that the government shouldn’t get into the banking business, but the same argument holds for NAMA only a hundred fold worse.

In time, the banks (Irish or otherwise) will need to start posting profits again and will be looking to lend to the viable small businesses again.

As a small business owner who speaks regularly to the owners of other small businesses, I have yet to hear any one complain that they could not obtain necessary credit.

If a delayed payment by one debtor can result in a business failing to pay staff salaries, then it sounds to me like the business is precariously balanced anyway and they should consider trying to reduce salary costs and/or their reliance on one customer.

In a nushell, we need credit for the productive areas of our economy.
Everything else needs a reality *cheque * :angry:

What a totally off the wall, crazy solution :wink:

People much smarter than us have decided that NAMA is the only workable plan. Switch your brain off and go with the flow.

I think a valid point is on the table here - there’s a big difference between credit required for the SMEs to survive and grow and that credit required for the Irish population to live the dream.

Personally I think most unscrupulous of VIs (people like that arse Tom Parlon for example) conveniently roll the two together and talk about turning on the credit flow to allow activity in the property market.

Really? Your brethren don’t agree with you.

I wonder if the 58% of companies refused credit by banks were making profits or losses ?

A continued line of credit is essential for any business that has relied on same to trade, i.e. the problem is not necessarily banks not providing new lines of credit but banks changing their policies and pulling lines of credit or reducing them significantly. I manage a business that had an LOC of over US$5million some 5 years ago, paid down to less than $2m last year when the bank decided that they no longer considered our company to match their client portfolio and gave us 3 months to find another solution, despite personal guarantees from the majority owner with cash deposits in other institutions to support a much greater ammount It was just silly buggers stuff. Happily, we had no problem to find a bank to move to which provided much better service and allowed the personal guarantees to be removed after 6 months of achieving certian goals.

This is the real problem, banks removing LOCs from viable businesses simply because their capital positions are screwed rather thna anything to do with the viability of the debtor. Opening a new LOC then becomes a problem for the debtor as the banks in general have tightened criteria, the trading conditions are tough through a recession, and SME owners are likely to have suffered reductions in their personal wealth through property or equity investments. In some cases the numbers do not add up, but in others many very viable SMEs are being choked despite their future potential.