Anyone see the piece on BBC Breakfast about the diving resort?
There is a company at a quarry that runs diving holidays. They were in the process of building holiday homes to sell. These were being financed by a bank. Half way through the build, the bank decided to withdraw the loan and told the company to sell the unfinished buildings to pay off the loan.
Really it would depend upon the T&C's of the loan ... it's a company that borrowed the money, the money will have been based upon a business case which will have been dependent upon market conditions and projected sale of the properties.
The business case may have been based upon the property market being great and people having loads of money to spend on holiday homes. When the market bombed the business case may no longer have been valid.
the company managed to raise funds through maxing cards and personal loans to directors. This meant they could finish the build.
Good on them - could potentially have ended up with a load of properties on their hands which they were unable to sell though. This was the risk the bank was unwilling to stomach.
Now, all the houses have been sold ...
Maybe they were lucky, maybe they had a good business case and just hadn't presented it well enough to the bank. Maybe the risk wasn't as great as the bank thought it was. Maybe the moon's made of green cheese :)
The thing is that they now want a far higher interest rate.....
Now correct me if I'm wrong, but it was my understanding that the public money used to bail out the banks
Only some banks got public money, neither Barclays & HSBC who just posted £30-40bn profits for the quarter took any money from the tax payer. If it was one of these banks then this arguement doesn't apply.
was to encourage them to loan more to boost the economy,
No it was to prevent them from collapsing under the level of debt which they had built up. If they had collapsed then you and I wouldn't have been able to get our money out of them. Businesses would
One of the conditions of the bailout was that they _should_ lend more to businesses. However they still have to be responsible with their lending and not just hand it out.
You wouldn't lend £100,000 to some guy who had a "great" idea for a new motorised offroad unicycle without some facts and figures behind him to back him up.
How can they justify a higher rate of interest when the base rate is at an all time low??
Because the level of risk to the bank of someone defaulting on the loan is higher. This is factored into the interest rates the lender gives when the loan is made.
It's why people, companies, banks and even countries have credit ratings - and get loans based upon their credit rating. Ireland had their rating cut from a AA+ to AA back in June ... this makes it more expensive for the Irish government to borrow money because the chance that the lender is going to get their cash back from Ireland is riskier.
For obvious reasons, the bank was not named!
Or maybe the bank in question hadn't got public money and it was just an opportunity for BBC Breakfast to get a sensationalist story out of someone who worked hard and had a bit of success.
Since the bank took their cash back the Diving company may have actually made more profit on their sales as they no longer need to pay the interest back to the bank.
Z~
