Show me the money!

I am sure that many in the accountancy profession are experiencing the same confusion as me over bank lending.

The banks are telling us that they have money to lend and are willing to lend, in the press every day but the businesses that I work with are still finding it very hard to secure any lending from the banks!

The situation may be explained by an interesting conversation that I had recently with the son of a long term client of mine.

He has recently joined a major clearing bank as a corporate manager and been given a portfolio of small business clients and has been told to get on and start encouraging them to borrow money.

The only problem is every application he submits he gets turned down by the bank’s credit committee as not meeting their lending criteria.  He was therefore having an enormous gripe about the fact that he was being squeezed from both sides by his employer, the one side encouraging him to sell borrowing as much as possible whilst the other side is not prepared to authorise anything.

Whilst I would never encourage irresponsible lending, one does wonder if this goes someway to explaining the apparent contradiction we are currently experiencing. 

The banks are ready and willing to lend but their over cautious credit committees are doing a very successful job in preventing this from happening. 
Maybe we can believe what we read in the papers………..

Southern Cross & the Care Homes Crisis

It is not without some dismay that I have been reading about the downfall of Southern Cross in the press.  Clearly this has been a disaster waiting to happen over the last year or so and finally it has.

The thought that up to 35,000 elderly residents could be ‘on the streets’ does not bear thinking about as my understanding is the average survival rate of an elderly care home resident after being moved is approximately six weeks.

There does seem to be some hope in that the landlords to a large extent are taking on these homes and in my opinion, there is no way the government would have stood by and let the homes be closed and the residents moved with the consequent mortality event.

I have to say the financial model which Southern Cross adopted in providing this care does seem to represent the type of reckless financial management which only takes place at the height of a boom. 

I can understand their desire to release capital from land and buildings and they would argue their business is providing care rather than being land and building landlords.  However, the one problem with this is that you then leave rent to the vagaries of your landlords and market forces which I believe has ultimately led to the downfall of Southern Cross.

It is difficult enough trying to run a care home in the current climate with the pressures of staff costs against zero increases from local authorities where residents are funded or self funding residents having reducing income due to current investment returns, without having to cope with ever increasing establishment costs.

I know it is easy to be wise after the event and hindsight is a wonderful thing and I can only say I do take relief in the fact that for the time being the ongoing security of the residents seems to be safe, after all that must surely be the most important thing.