Issue No. 42 - August/September 2008
Surviving the crisis with credit
by Pamela Brombal
Whether you call it the sub-prime crisis, credit crisis, or liquidity crisis, much has been written about the turmoil engulfing global financial markets.
Many business people in SA have a sound understanding about how this condition developed. One question that arises is, how do businesses navigate their way through the mire, or should they just weather the storm and hope for the best?
Over the past 12-18 months we have seen credit - the availability of funds - contract both internationally and locally. This becomes more apparent when you consider how easy obtaining credit has been in the last decade via such products as ‘Low Doc’ loans.
Risk appetites have diminished and investor confidence is down. But what does this mean for the average business borrower and what can they do to survive these difficult times?
Essentially the answer lies in confidence.
Borrowers need to consider taking action that increases the confidence they express to their
financial providers. Whether those providers are private investors or banks (banks are investors too – of shareholder capital) the prevailing uncertainty demands added security, usually taking the form of legal or financial agreements.
However businesses can increase the level of confidence they create by making sure their financial and commercial settings are strong and current.
Transparency is the key to winning a strong position. Over recent months we have seen many examples of organisations being heavily punished by the financial markets when information has been ambiguous. In this regard, a bank’s credit department is no different to the share market.
A corporate ’playbook’ must be demonstrably substantiated by fact and documentation – anecdote and passion for the business simply does not engender the required confidence in a company’s credit status.
For shareholders, banks, and ratings agencies the business model of an organisation ...