Money
Issue No. 50 - December/ /
Credit: only the careful need apply
by David Mackie
The so-called ‘Credit Crunch’ is a resonating aftershock of the global financial crisis. But with Reserve Bank lending rates at 40-year lows, why is it so hard to get finance?
Independent financier, David Mackie of Asset Partners has worked in financial services since 1974 and in business equipment finance since 1996. He’s busy helping clients satisfy the newly stringent lending conditions.
“Historically there have been several factors involved in lending criteria, referred to as a Matrix,” David says. “These ask applicant businesses to demonstrate an acceptable standard for Time in Business, Credit History, Asset backing of signatories/security offered, Financial Evidence (ability to service new borrowings) and Asset Type being funded.
“There is, in addition, the cost of funds and margin in the transaction to warrant the financier making a profitable lend.”
If the Matrix criteria were satisfied, lending went ahead, but today some transactions which would have been simple in 2006 have become a struggle, or simply undoable.
“Specific sectors of business are seen to be ‘at risk’, such as retail, property development, hospitality and automotive parts, and asset-type lends for property development, trucks, fit-outs and software are far harder to obtain,” David says.
Although the Reserve Bank’s cash rate is at 50-year lows, cost to business borrowers is higher due to high costs of bank borrowing and funds scarcity. Margins between high and low risk which had been 50 to 100 basis points (0.5%-1%) have grown to 2.5% to 4%. Increases of at least 1.5% have been common through all sectors of the banking and borrowing market.
Repricing of risk affects all businesses from SMEs to major corporates and governments.
“Stopping business investment is not the answer, as the current environment is one of opportunity. The old saying, ‘The most expensive thing is to do nothing,’ rings true. Investment dr...
