Entrepreneurs may have mixed feelings about the collapse of
Lehman Brothers in the US and HBOS in the UK.
Some will feel a genuine sympathy: we all live with the
constant threat of business failure, so there may well be a moment of “There
but for the Grace of God...”
Others may experience a guilty pang of pleasure: most
entrepreneurs have horror stories of how their own tough times were made worse
by callous banks, and we are all suffering at the moment because of the
bankers’ own greed.
Most will feel a bit of both.
How the failures will impact on us will depend on whether we
are shareholders, depositors, debtors, or customers of the banks in question.
It is in the nature of entrepreneurship to be in several of those categories at
Bad news: shareholders are obviously the big losers. Good
news: depositors are almost certainly safe.
Debtors may come under pressure in the short term. New
management may be more aggressive about calling in marginal loans and chasing
bad debt. However, those most at risk may benefit in the longer term because
greater provision will have to be made to write off bad debt.
It is as customers that many entrepreneurs will suffer most.
Liquidity is being reduced throughout the banking sector. Overdrafts are being
reduced, old loans are not being renewed, and new loans are increasingly
uncommon and ungenerous.
Less cash means fewer businesses. The survivors will be able
to console themselves with the thought that this will mean less competition –
but first we must survive.