It may sound like a new brand of breakfast cereal but why are the banks so keen to try and put a sugar-coating on the credit crunch?
If the talking heads in the financial world are to be believed, the problems in the credit markets will all be over by Christmas. That timescale has been given in relation to global strife in the past and there are reasons to believe that it will be no more accurate this time than it was in 1914.
The reality is a lot of people in the banking sector are very nervous. Their nervousness arises from the fact that no one really knows which institutions are most exposed to the toxic debt that was packaged up and sold all around the world. Most importantly, they don’t know the level of their own exposure, as the financial instruments that were created were so complex that it is difficult to know who now bears the risk if the borrowers behind these products default.
The result of this fear is banks are nervous about lending to each other and are attempting to hoard cash. Credit at the moment has become a one-way street with all of us lending to the banks (in the form of savings) without reciprocal lending by the banks to us.
The reason the banks are trying to sprinkle a little sugar on the credit crunch, therefore, is that they need our money. RBS and HBOS have already announced rights issues to improve the parlous state of their balance sheets and more banks are sure to follow suit in a desperate bid to hoover up our cash before it runs out.
Banks also fear becoming the next Northern Rock. They are desperately trying to reassure their customers that they are in a sound financial state to avoid the loss of faith that saw customers withdraw billions of pounds in the first run on a bank in over a century. Expect to hear plenty of phrases from your local business manager along the lines of “it’s business as usual here” whilst quietly declining your application to renew your overdraft facility.
Cousins Business Law Advice during the Crunch
If your business relies on borrowing to continue to operate successfully, you may find your options limited. You may think that asking your lawyer for advice would be fruitless but Cousins Business Law have come up with some tips to help your business survive.
The old adage ‘Turnover is vanity, profit is sanity but cash is reality’ has never been more relevant. Your lawyer can improve your cash position in a number of ways:
- By helping you negotiate and/or draft important contracts so as to enable you to be paid interim payments on a long project and to avoid damaging disputes arising;
- By drafting your standard terms of business so that they maximise your chances of being paid and on time;
- By negotiating commercial agreements and contracts on your behalf to ensure that payments to you are guaranteed if possible, for example, by ensuring payment obligations are protected by bonds or guarantees;
- By resolving contractual disputes where you are owed money in a quick and cost-effective way;
- By advising you of your legal obligations in relation to your creditors and what to do if insolvency threatens;
Contact Cousins Business Law on 0121 778 3212 or email us here with your enquiry.
Also read – The Best Options in a Falling Market on the Cousins Business Law website for advice to developers on how they can continue to profit in the current climate.