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Goodwill Hunting/Surviving Cr.
| Goodwill Hunting/Surviving Credit Crisis |
Surviving the Credit Crisis
The Global Credit Crisis explained
Over the past few weeks, it has been very hard to avoid the persistent news concerning the Global Credit Crisis.
Fortunately in Australia, lending parameters have been at a high standard for several decades with loan default levels at very low percentages (albeit there has been an increase in the last 6 to 12 month as the economy has slowed).
Competition between lenders in Australia has decreased dramatically over the past 6 – 12 months with several lenders pulling out of various market segments and others cutting back drastically. This has left the major banks with an even bigger share of the available market which has its good and bad points. Good in that borrowers are comforted that they are dealing with one of the strongest banks in the world but bad in that they are captive to organisations that appear to hold shareholders in a much better light than they do their customers.
New lending volumes (both business and personal) in Australia have been way down on levels experienced up to about 1 year ago. The major lenders are still keen to lend to worthwhile borrowers – after all, that is the nature of their business.
An effective approach for Small Business
For small businesses, lenders will still fund reasonable transactions and there are ample funds available to do so. The major differences in what happens now compared to say 1 year ago are:
• Loans need to be properly secured by appropriate assets (ie. property, business assets, cash, etc) and unsecured loans very difficult to obtain
• Loans to be no more than LVR (loan to valuation) maximums whereas previously there was some flexibility for the right deal
• Serviceability criteria is more difficult primarily because of higher interest rates
For current business owners with borrowings, it is imperative that they try to stay within their lending limits and up to date with repayments. Once accounts are out of order without agreement from the lender, borrowers are causing themselves further problems. Businesses should monitor their cashflow daily, reduce any ongoing unnecessary expenses and if there is going to be a deficit, talk to the banker immediately BEFORE due date/going over limits. Business lenders currently have little flexibility at a branch level for over limit excesses.
Other areas that business lenders are currently concentrating efforts are:
• Annual account reviews. In past years these were generally ticked off if accounts were in order but lenders are now going through the full steps including ensuring they obtain up to date business financial statements and actually reviewing them for signs of business difficulty
• Ensuring clients remain up to date with GST and other tax and statutory requirements (there used to be some flexibility with this where clients are in arrangement with ATO but this is now considered a no no)
• Where necessary, re-evaluation of security
• Assessing conditions in different industries and encouraging clients to take steps to avoid problems
Where lenders find there are issues with the above, accounts can be (and are) transferred from local branch management to their head office portfolio management areas - this is generally not good for businesses with the bedside manner best described as clinical as the lender really wants to find the cleanest way of extricating themselves from the situation.
In recent times we have been successful in obtaining better terms for business clients (where all the above items were in order) by refinancing to another lender - in some cases we have been able to dramatically reduce monthly loan repayments and applicable interest rates.
Top 10 tips for your business to survive the current crisis:
• Review all stock and operating expenses and remove/reduce any that are not positively contributing to cashflow
• Keep all loan repayments up to date (if a problem arises, advise the lender BEFORE the due date)
• Ensure your financial statements are prepared and reviewed regularly
• Prepare cash flow forecasts and test various scenarios e.g. What would happen if sales were reduced by 10% or purchases/operating expenses increased by 10%?
• Keep up to date with all tax and other statutory obligations
• Monitor your cashflow every day
• Review current borrowing structures. Is there a better way for it to fit within the current/future cashflow?
• Talk to your major suppliers about possible longer trade terms or discounts for prompt payments
• Make sure you have a close relationship with competent Accountant/Business Advisor who knows your industry and can provide ongoing business advice
• Seek out any possible new product or service that could meet a market demand and diversify your income base
None of the above are particularly new points however many small business owners have been operating only through the buoyant conditions of the past 5 years and have only recently started going through a business downturn. It is not all gloom and doom but the survivors will be the ones that are properly prepared.
This article has been provided by Gordon Eggins, principal of City Pacific Finance Business Solutions. Gordon has been assisting both new and existing SME Clients with arranging finance for their business for many years. Gordon may be contacted on 02 6360 0622 or 0414 582 517 or at geggins@citypacfinance.com.au.
Call the ANS team on (02) 8425 9600 or email us at info@newsales.com.au for an obligation free chat.
Yours sincerely
The ANS Team
www.newsales.com.au
Level 3, 33-35 Atchison St, St Leonards NSW 2065
PO BOX 547 Crows Nest NSW 1585
Telephone: 02 8425 9600
Facsimile: 02 9552 2712
Australian Newsagency Sales (ANS)
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