The current financial situation in the UK not looking good with more and more being spent on credit cards, the credit crunch doesn't look like it will be over away any time soon. For most people this is a big problem, and sadly it gets worse if you own a small business, as you can be most at risk of going bankrupt over the next 12 months. But by following a few easy points you could avoid bankruptcy all together and beat the credit crunch.
How did the credit crunch start? The credit crunch started when American mortgage holders on low incomes unable to meet their loan repayments, many homes have been repossessed and banks now have to write off the so-called sub-prime loans. These are what a lot of banks in the US and in Europe have bought packaged up in collateralised debt obligations which are basically pools of debt. These debt pools are now worth a lot less than when the banks first paid for them and are now very difficult to sell. This has forced some banks to close funds that were exposed to these loans and the US sub-prime sector.
This has now caused banks to increase the cost of borrowing which is now well above the target rates set by institutions E.g. the Bank of England. This means that people, especially those with poor credit ratings are finding it harder and more expensive to borrow money or get a mortgage.
How will the credit crunch affect my business? If your business relies heavily on overdrafts and bank loans then you can be most at risk due to banks declining people and businesses loans. The credit crunch could claim jobs although these seem to be limited to relatively well paid members of staff in large international banks, but there is also a threat of job losses from employers in other parts of the economy, and is seen as the next step.
So what can I do? Obviously the first step is to cut down on spending and borrowing. Loans are now coming with an interest rate in excess of 10% which will put business in more debt so try to cut back on the items and products you don't need at home and for your business, you could try switching to supermarkets own brand products and take advantage of two for one offers and buy one get one free. Make sure you produce plausible and accurate month by month cash flow forecasts as these will help you to be prepared to take tough decisions if the credit crunch hits you harder then you first thought.
But if you are desperate for money consider releasing equity in your home. This will allow you to get access to funds and also have the peace of mind that your home is secure. Sell and rent back companies work by buying your house and then renting it back to you over a period of ten years. You can get companies which will give you 100% of the value of your home by giving you 70% when you sign up and the remaining 30% at the end of the tenancy. Some sell and rent back companies will offer a buy back service if you think you will have the financial security in a few years to purchase your house back from the company.
Looking forward. The credit crunch is a problem for everyone, but if you make you manage your finances carefully you and your business won't have a problem.
About the Author:
Giles Bertie Harrison is a freelance writer covering the sell your house and rent it back sector within the property sector
