The UK has simply increased its borrowing (public debt) to fund spending and prop-up the ailing bank system.
David Cameron was quoted recently as saying “The country has got an overdraft. The interest on that overdraft is swallowing up things that the nation should otherwise be spending money on”. He went on to warn of tough times ahead saying “We need to address the areas where we have been living beyond our means.”
There must be numerous business owners who can relate to that situation. Few people have not, at some time, had to “tighten their belts”.
The UK has simply increased its borrowing (public debt) to fund spending and prop-up the ailing banking system. It has still managed to hang on to its AAA credit rating despite its huge budget deficit.
The problems occur if you are running a business and have experienced problems as a result of the economic downturn. Then there is every likelihood your bank will be far more reluctant to lend. The ability to simply “increase your overdraft”, as the UK has, often simply isn’t an available option. So, what do you do if your business is short of cash flow? Perhaps as a result of suffering a bad debt or sales have dropped off leaving you with excess capacity? There may be alternative forms of finance which would address the cash shortage. For example, factoring book debts but that isn’t suited to all situations.
Another alternative may be to try to attract private investors. However, if your company’s balance sheet is overburdened with historical debt they’re likely to be reluctant to pump money into what they think may be a lost cause.
Of course, you could simply give up and “throw in the towel”. But this should be a last resort after the amount of effort to build up a business to start with.
Many entrepreneurs, from small enterprises to large PLC’s, are looking to insolvency procedures to buy time or help them to restructure. One major problem is most business owners (and many advisers) have a limited knowledge of what is available and how it could work.