Tim Wilson says brokers will struggle as credit lines dry up

The credit crunch has made headline news in recent weeks in a way that few financial issues ever do. The reluctance by banks to lend money, because they are not sure how risky it might be, is clogging up the financial system.

But so far, the view from the market seems to be that brokers are yet to be seriously affected by the issue. Is that set to change next year?

What do we know for sure? Well, despite the injection of liquidity into the markets by central banks, interest rates on inter-bank lending are still unusually high. And banks are tightening up on their lending to individuals and companies, restricting the availability of credit as well as making it more expensive.

All the indicators are that this situation will get worse before it gets better.

This turmoil, together with rising inflation and other negative factors is spilling into the real economy, and many business and individuals will feel the squeeze.

So how is this likely to affect brokers? In the first place, many clients will find bills harder to settle, and bad debt is likely to increase.

As a lender, we’ve also felt the need to clarify things to brokers. As a direct result of the credit crunch, we took the unprecedented step in October of reassuring our clients that we are continuing to provide premium finance, an invaluable additional line of credit, on an unimpaired basis.

Brokers will also struggle to borrow. While the current buying frenzy will continue, accelerated by the capital gains tax changes next April, small brokers are likely to lose out to the big players, which have their lines of credit intact.

Funding lines are so critical to the successful running of a broker that this is going to be a crucial issue for the market next year.

Only time will tell to what extent brokers feel the crunch, but what we can be sure of is that brokers and lenders alike need to keep a tight rein on their costs and to continually check and recheck their credit lines to ensure that they are well-funded to thrive in 2008.