Banks are justified in refusing credit to IFA companies operating on low profit margins because lending to such high-risk firms would undermine their responsible lending credentials, says Plimsoll.
According to the research group, 464 companies in the IFA space exist on low profit margins of less than 1.5%, with 318 of those making a loss, and any "bump in the road" would be enough to see them fail. "Recent high profile failures in other sectors (namely the travel and construction sectors) show the danger of operating on micro profit margins and the same thing could be heading to the independent financial adviser industry in 2011," it says. It adds "nobody should blame" the banking sector for refusing credit to firms which might not be able to pay back the loan. If banks are to ...
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