A WELL-known Blackburn firm has become the latest victim of the banking crisis after being placed into administration despite making a profit.

Leo’s Carpets has been based in Preston Old Road, Cherry Tree, Blackburn, for nearly 40 years, but company bosses were forced to wind-up the business after a high street bank called-in £400,000 of debt.

Founder Leo Flood, 64, said the request was made in January and by the end of last month all but £39,000 had been repaid.

The firm made a £200,000 profit on a turnover of £5.3million last year and Mr Flood said he was confident the company would generate a similar levels again.

But despite this, administrators were called in over the remaining £39,000.

It is now being sold as a going concern by MCR Corporate Restructuring, Manchester, and 16 staff could be saved if a buyer is found. A further 41 have lost their jobs.

Financial experts warned that other small businesses could face similar problems as the global financial crisis forces banks to cut costs.

The company was set up by Mr Flood and wife Barbara in the 1960s and also provided jobs for sons David, Mark, Simon and Andrew.

Mr Flood said: “This is almost like a death in the family. We have lost everything. The whole family is on the dole and has been made redundant.”

Mr Flood said the company had an agreement with the bank that there would be a debt limit of up to £400,000 on the account. This facility acted as a buffer as the company looked for payment from the contracting side of the business - a sector that Mr Flood said was prone to delays in payment.

He said: “The money left to pay was a contracting debt which we would have been cleared by the end of the year.”

In September the bank demanded the remaining £39,000 and refused to transfer funds into the Leo’s Carpets current account which led to administrators to be brought in, Mr Flood said.

Phil Duffy, of MCR Corporate Restructuring, said: “The firm has experienced financial difficulties due to current conditions, but it is a good business with market potential. We are looking to sell it as a going concern. ”

Les Nutter, managing partner at Haslingden-based Cassons chartered accountants and business advisers, Haslingden, said: “It is inevitable that banks will up rates for smaller businesses.

“Times are difficult and banks are under increasing pressure so costs to customers, especially small business, are bound to rise.”

But Mr Nutter urged businessmen to remain calm in the current financial climate and that the situation which blight Leo’s Carpets would not necessarily repeated across the board.