I have attended many conferences over the
past month or so and have had to listen to one bank representative after
another making claims of how wonderful they are when it comes to helping the
legal profession. Often
presenting with a smile and twinkle in their eye I have had to sit and listen
to how lending to the legal sector is up on the previous year and how they have
extended overdrafts and provided loans for practices to develop.
Listening and drifting off to another world
it is easy to get lost in the fluffy words and believe how lucky we are to have banks who despite the
deepening recession and meltdown in Europe, are still there to help when help
is needed.
Unfortunately the reality bears no
relationship to this fairyland rhetoric. Yes, banks are lending to the sector, and perhaps lending is up, but the fact is that a solicitor business is viewed
no different from any other business, and unless you meet the credit criteria
fixed by some faceless person stuck somewhere is a skyscraper in London, you will
not be helped. It’s as simple as
that.
The truth is that banks will only lend when
the exposure to bad debt is minimized with security and capital reserve
requirements. Ask yourself how
many practices fit this criterion.
Moreover, the very reason for turning to the bank in the first place is
that there is nothing in reserve and short term assistance is required.
In fact banks look at solicitor practices
differently, and in a way which when compared with other businesses makes it even more
difficult to satisfy the faceless men who make these decisions. Most firms are profitable, but face cash
flow problems. Apart from those who own the premises they occupy, there is
normally no other assets of value in the business other than work in
progress. The problem is that banks
when looking at the balance sheet refuse to attach any weight to it, even though
the Inland Revenue is quick to value and tax it! I am not sure why this is so when its no different to stock
in a stock room.
So what can be done? Very little I am afraid to say as the
banks hold all of the cards and will clearly dictate the fate of many of those
legal practices who are struggling to keep their heads above water. All I can say is to forget loyalty and
shop around. Although most banks
are the same, there are some that are worse than others. The days of receiving a more favorable
hearing if you have been with a bank for some time are long gone. Loyalty is only a one way street for
many of these banks.
Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk
