There’s been a dramatic rise in bad debts. Banks are not eager to lend.
Businessmen are scared about refinancing debt when it comes due.
Most of the chief executives I meet these days divide into two groups. There are those who expect trading to fall off a cliff. Then there are those who expect trading to fall off a cliff and also have debt coming up for refinancing.
Difficult trading they can cope with. But the prospect of trying to refinance borrowings in markets that are still frozen is really scary. It is the fear that credit will not be available even for the most solid companies at anything less than penal rates that makes this downturn so unnerving.
As John Cridland, of the CBI, told MPs yesterday, companies will be unable to borrow their way through the downturn as in other slowdowns over the past decade. This will force them to cut back on investment and other costs, including jobs.
It is only to be expected that small companies are finding it more difficult to squeeze money out of their banks than they were a couple of years ago. The banks that have signed up to the Government’s recapitalisation plan have committed to return availability of lending to 2007 levels consistent with commercially responsible lending practice. In the context of a sharp recession, commercially responsible lending practice means less lending.