What Does the Future Really Hold for NI?

Last month I ran the Dublin marathon in just under four hours.  It was a great day, with the people of Dublin coming out in force to support over 15,000 runners through the 26.2 miles.  The feel good factor after doing something like a marathon is always great.  However, on this occasion, the euphoria was short lived. As I drove back to Belfast, listening to the radio, local politicians were sniping at each other over the austerity program and the incoming cuts to our budget with the added occasional descent into a rant with name-calling.

For me it’s all theatre, as despite all of the bickering and fighting Stormont approved a budget for next year, albeit not one we should celebrate too quickly. 

In the last few months I have listened to some elements of the media, politicians and economists tell how the economy is improving.  Apparently more people are working, the private sector is picking up and the property market is moving again! It is going that well that Stormont is preparing asset sales of their crown jewels to pay for the £100m so called Wonga loan note that Westminster has lent to us.

In short and from a statistical point of view, yes,the economy in Northern Ireland has certainly picked up.  However, I would suggest that the man on the street is not feeling this and furthermore won’t be feeling the benefits of an upturn anytime soon. 

Recently I have seen evidence of the huge household debt overhang facing many people and with the insolvency cases hitting record numbers this year, it is forecast that this trend will continue.  It is accepted that Northern Ireland has a greater problem dealing with debt than the rest of the UK, with 27% of the population over indebted, compared to the UK average of 18%; that’s according to the Money Advice Service.

Moreover, there is another problem facing the economy that has gone largely unnoticed which is causing me concern, and it has the potential to put the Northern Ireland economy back into a nosedive. 

By 2014’s year end, billions of pounds worth of property loans will have been sold by NAMA and Ulster Bank which relate to our small to medium sized business community.  These loans have been and will be bought by American Vulture Funds for the most part.  These Funds will now own the loans and will be responsible for the out-workings of these loans. 

The challenge for the SMEs, through no fault of their own, is how they remain in control of their assets and their business.  If we look at what happened in Cork of late whereby an American Vulture fund tried to take control of a very lucrative family business by calling in a personal guarantee at very short notice – this is alarming!

In the last few weeks our practice has been contacted by dozens of companies from all over Northern Ireland. Their bank has advised, Ulster bank in most cases, that their loans are being sold.  The businesses have no say in the matter and the bottom line is they will soon have to deal with a new bank or to be more accurate private equity companies that want their money back.

Having worked in this space for the past eighteen months, I advise that for the SMEs in this position, it will prove extremely tricky to keep everything on track.  The private equity companies which are buying these loans aim to get 15-20% internal rate of return on their monies per annum, and this type of business model is not conducive to supporting a local business which may be working to a longer term business plan.

It would appear that one exit strategy for the SME is to find a finance partner or a bank that will support them.  The challenge in Northern Ireland is that our banks are not open for business for the most part and amongst those that are, their terms are such that they cannot or will not assist.

SMEs that find themselves in one of these loan trades need to be proactive in terms of putting together their own proposals and ultimately trying to stay in control of their businesses. It’s certainly not for the faint hearted; however, a solution is possible.

For me the austerity program is now starting to unravel and with its lifespan due to run to 2020 it is very hard to be optimistic. Maybe I need to run more marathons to have any chance of experiencing euphoria in the near future as any sense of optimism or business optimism in Northern Ireland is some way off given the current sorry state of affairs.