Talking last night with insolvency experts, it would seem that the world from their perspective is a dark and dangerous place now. By far the biggest single reason for business failure in their opinion is the global credit crunch/crisis.
A long awaited privacy review has finally been released this week by the ALRC, and in it a watered down version of positive credit reporting has been endorsed. As one of only 2 countries in the OECD who currently only provide negative credit reporting, ie when you haven’t paid your bills, not when you have, Australian credit risk managers have always done an impressive job given their lack of borrower insight. The US have had comprehensive reporting for a long time and look at the pickle their credit managers have achieved! With the proposed changes, which are odds on to be accepted by the government and legislators, Banks will finally get some deeper insight.
Reading through the AFR this morning I can’t help but think that the NAB spin machine is working hard. In Matthew Drummond’s article NAB holds its nerve on rates it is implied that NAB is under pressure from Westpac and CBA who are stealing business clients by the truckload. George Liondis then goes on to recount Cameron Clyne in Rivals step up race to topple bank who also implies that they are under assault without naming the culprits. My observation is that this is not the real story.
Westpac again raised the prospect of difficult times ahead regarding profit, as recounted in the following article by Glenn Dyer. However it needn’t be that hard if banks started lending to quality businesses again. Gail Kelly recounted that business lending demand is weak, however this is not my experience. Most businesses out there would change banks in a flash and many have grand plans for growth. The thing that stands in the way is bank appetite, not propensity to borrow.
Small business lending stinks and home loans are cool. That’s the message that we are getting in the press and in practice when we go and ask for a small business loan.
You have to feel for the small business bankers actually (well you don’t but having done the job once I do). They have a master that is telling them that they don’t like property security and to focus on cash flow lending, however they have a credit department who can’t get comfortable in today’s environment with business performance so they only want to lend if there is limited or no probability of loss given default – ie residential property.
Bankers in major banks (ne all banks) are pushed very hard and are forced to give their employer more than a pound of flesh. However the last couple of years have frustrated banking’s frontline. Believe it or not, most bankers get into banking because there is an element of doing community good in what we do. When you help a business by financing their investments and facilitating growth and success, you feel great. You have made a difference.
There has been much written about Exporters who are currently suffering as a consequence of the strong AUD vs USD and other currencies. Importers are busy making hay and you would think that these favourable conditions would please their bank but know this: your bank is nervously watching you wondering if you realise that good times never last.
When times are tough, Banks will work hard to manage the risk of struggling clients. Not new news. However great banking customers know that when times are good, credit managers are paid to look objectively at the success and seek input on:
Blah blah blah banking competition blah blah….
Why do banks do anything? Because bank executives will get a big bonus. Usually the interests of the executives is aligned to that of shareholders, but executive management strategies start and end with bonus’ which drive behaviour.
Small business in Australia at least, if not the world, is proving slow to embrace the social media marketing phenomenon, but take note; there will come a time where your absence from the “Google Check” will be a hinderance to you and or your business obtaining finance.
Here is an article published by Pearl Finance’s Alan Miltz. Alan will be speaking at Kochie’s Business Builders Conference in Sydney in April and is really worth seeing if you have time. He is flown around the world to present to CEOs on cash and financial strategy. His unique angle will change the way you run your business!
An interesting article. This threat to Pubs and Clubs is huge, but one has to wonder whether this is not a good example of concentration risk – ie over reliance on a single earnings stream. Does your business suffer from this? If so it might be time to sit in the hall of mirrors and think through how you might diversify…. Banks nervous about new pokie rules.
I am recently returned from a holiday in New York. I went with my gorgeous wife, a girl that I have been with for some 12 years. In all that time I have never known her to get quite so excited about shopping as she was in NYC. It was like hanging with an aroused shark. She tore from shop to shop gorging on one bargain after the next.
I have to confess to being impressed by many of the shopping experiences that I witnessed. Sales staff were attentive. Even though the prices of clothing were extremely discounted (up to 50% off prices that were already between 25 and 50% cheaper than we Aussies are used to) there were always plenty of staff to serve and they all did a great job of sucking every last penny from our willing wallets!
Bankers are very judgemental people. They have to be as they are invariably given limited information about their client and are expected to spot clues about risk from these. get it wrong and the banker might lose their job, or certainly have their pay impacted. If you are displaying any of these signs you may wish to think about making some changes to your business!
If the US Government was a family, they would be making $58,000 a year, yet they spend $75,000 a year, and have $327,000 in credit card debt. They are currently proposing BIG spending cuts to reduce their spending to $72,000 a year. These are the actual proportions of the federal budget and debt, reduced to a level that we can understand.”
Melbourne, Vic July 15, 2010 Recognising that Banks speak Spanish and Business speaks Portuguese (they sound the same but are totally different languages) a group of Bankers have joined together to take away business owners need to deal directly with their bank with a new Bank Management Service.
Common business complaints about banks include my manager keeps changing and the bank doesnt understand my business. The Pearl Bank Management Service offered by Pearl Financial Services allows businesses to essentially hire their own banker, providing them with an expert to cushion the business from the day to day frustrations of dealing with their bank.
With the media continually reporting doom and gloom it is fair to say that everyone holds concern for the immediate economic future. None would be more concerned than our friend, the credit manager.
The uncertainty comes at a dangerous time for business as it is around now that most businesses will be presenting 2011 management accounts to the bank, together with budgets that will be setting bank expectations for 2012.
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.
Forecasting is a constant frustration for bankers. Banks use these for 4 things when managing your commercial loan or assessing you for new loan money;
- To get a feel for future cash requirements, and to determine the adequacy of finding provided
- To determine the likelihood of getting paid back
- To understand the business and the environment in which it is performing
- To gain comfort in the skills and understanding of management
Get your forecast wrong and you will spend most of the year justifying your existance to the bank.
(Older post) With 30 June fast approaching, here are 5 tips that business leaders and finance managers should consider to ensure that Bank relationships are enhanced next financial year:
In Ian McIlwraith“s story about Clive Peeters today in the SMH, he observed that Clive Peeters had been forced to make $2m of principal reductions by its bank at a time when the business could least afford to do so. Whilst we are not in a position to comment on whether this is true or not, this is a common predicament faced by businesses that are struggling and all too often it is the fatal blow. However manage your bank better, and this need not occur.