Melbourne, Vic Aug 20, 2010 Market leading commercial banking advisory business declares the lending drought experienced by Small Business for the last 2 years is over; with access to finance for Small Business expected to significantly improve this half.
Pearl Financial Services General Manager, Nathan Keating says:
As we are seeing in the recent major bank profit releases and trading updates, Small Business lending performance has been down. A key contributor to this has been the banking communitys concerns over the credit risk of the small business segment relative to other asset classes.
However, as lending exposures to Small Business reduce, Banks are at risk of being seen to be overweight in alternate asset classes. Competition for other asset classes, particularly retail housing, has also put pressure on margins.
Small Business lending margins are as high as most can remember while economic conditions continue to slowly improve. Businesses that were going to struggle to survive any economic crisis have already fallen over and those that remain have shown their business models to have a degree of robustness.
Also, bank management in charge of SME customers are coming under increasing pressure to lift business volumes. Their loan books rapidly decline through natural attrition and as customers make scheduled principal reductions reducing the loan base on which interest is earned. If business bank managers dont start lending soon they are going to struggle to meet growth targets and retain jobs.
Pearl Financial Services advises businesses on how to get on better with their banks. For businesses looking to take advantage of the new level of banking interest expected for the sector they recommend considering the following:
1) Borrow for growth, not for extraction of equity – Banks, like equity investors, want to be backing successful businesses enjoying success. Your presentation to the bank needs to convey this enthusiasm for wealth creation. If you want to take cash out of the business this sends the message that you dont believe in what the business is trying to do. If you dont believe in it then why should anyone else?
2) Bankers like numbers your banking plans need to be conveyed to the bank in 2 forms; story form and number form (i.e. as a forecast). The numbers need to relate directly to the story and they cant be too fanciful. If you have only grown revenue by 3% pa for the last 3 years, dont expect a bank to believe youre now going to grow revenue by 20% without some very detailed and compelling evidence.
3) Dont let the bank find bad news themselves volunteer bad news, then you control the way the bank reacts to it. Left to find the disasters banks will fill in the gaps in their understanding and they are trained to expect the worst. This will more harm any relationship.
4) Test your bank as banks grow hungry for business they will work to drop your rate to retain business in preference to going into the market to find a suitable business to replace yours in his/her portfolio.
5) Dont be afraid to ask for a better deal.