Silicon Valley bankruptcy and Credit Suisse sale point to trouble for startups

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Silicon Valley bankruptcy and Credit Suisse sale points to trouble for startups.
Reuters

The sudden disappearance in the United States of Silicon Valley Bank, the biggest bank failure since 2008, will have, according to most experts, limited effects on the economy but raises serious uncertainties about the financing of newly created companies (‘startups) and on the technological sector. It is one of the conclusions of the experts of Credit and caution, which augurs a true change of cycle in the face of the difficulties of new venture capital companies. “Is he end of venture capital model that has promoted the development of the sector during the last decade. Beyond these direct effects, it is foreseeable that the financial sector will show itself to be more restrictive in granting credit, already conditioned by high interest rates,” concludes Crédito y Caución.

The question now is how the Federal Reserve (Fed) or the European Central Bank will tackle the difficult task of balancing the fight against inflation with the economic slowdown and rising financial risks. “The inevitable effect of monetary tightening is more expensive credit for families and companies,” adds the analysis, although it considers it “unlikely” that the Fed will reverse its monetary policy, which the European Central Bank has already confirmed with a rise in 50 basis points last Thursday.

The rapid rise of the interest rates it has failed to curb inflation and even appears to have fanned the flames of rising prices. Companies have been forced to choose between passing the new financial costs on to their final prices or assuming them at the cost of reducing their margins. And for the moment the first option has been the winner, but the most indebted firms are expected to have problems. “The most leveraged companies that need to refinance their debt at higher rates and those sectors that depend on the ability of families to finance themselves (such as automotive, construction, real estate or durable consumption), will be the most affected. Other sectors such as pharmaceuticals, chemicals , oil, gas, raw materials or metallurgy are performing better,” concludes the Crédito y Caución report.

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