Week Ending: Credit still crunched

ALTHOUGH there have been encouraging signs in the last few weeks, as deal flow in the region has picked up, it’s clear there’s still a long way to go before we can talk about recovery.

Evidence of this came this week from Meridian Healthcare, a good North West business being hamstrung by the problems its bank, HBOS, has created by lending recklessly to other businesses in the past.

Meridian, based in Hyde,Cheshire, has just announced record and profits for a ninth consecutive year.

It wants to take advantage of consolidation in the care homes sector – increasing regulation is making it harder for smaller operators to continue – and also lower construction and property costs.

As a profitable, well run business Meridian should have no issue being able to borrow to fund expansion.

But HBOS – with whom it has banked for more than a decade – will only lend at what Meridian chairman Alan Firth describes as “prohibitive” rates, and wants to re-price the company’s £55m borrowings at higher rates in return for lending more money.

Award-winning businessman Mr Firth, who is now talking to other lenders, says: “I feel that the bank is now exploiting a good business to make up for cock ups it has made in lending to bad businesses.”

Earlier this month, HBOS’ parent company Lloyds Banking Group, declared a £4bn loss in the first half of 2009, due to mounting bad debts. Lloyds said £13bn of loans and investments had turned bad, most of them from HBOS.

At a time when unemployment is on the up, and the Government is constantly encouraging banks to support the business community, something is going wrong somewhere.

Until good businesses like Meridian can borrow sensibly to create wealth and jobs, there will be no end to this recession.