If you are looking for support during this COVID-19 Crisis, below is a list of where to go for some key lenders that we use. If there is one missing or you (or a client of yours) needs to discuss options available, please don’t hesitate to reach out to us. We are here to help…..
Here is a summary of Government support available for businesses. This list was put together by Mawson Group – thanks for sharing!
|1||Boosting Cash Flow for Employers (up to $100k)||Credit in the activity statement system from 28 April 2020. Payment equal to 100 per cent of the amount withheld, up to a maximum payment of $50k. An additional $50k payment is also being introduced in the July – October 2020 period.||ATO||$50m revenue|
|2||Defer Tax Payment||Allowing businesses to vary PAYG instalment amounts to zero for the March 2020 quarter. Businesses that vary their PAYG instalment to zero can also claim a refund for any instalments made for the September 2019 and December 2019 quarters.Remitting any interest and penalties, incurred on or after 23 January 2020, that have been applied to tax liabilities.Working with affected businesses to help them pay their existing and ongoing tax liabilities by allowing them to enter into low interest payment plans.||ATO||All (TBC)|
|3||Payroll Tax Refund||Businesses with annual taxable wages up to $3 million will have their payroll tax for the 2019-20 financial year waived.Eligible businesses must continue to lodge returns but do not need to make further payments for this financial year.The State Revenue Office will directly contact eligible businesses in relation to reimbursement for payroll tax already paid in the financial year.These businesses can also defer paying payroll tax for the first quarter of the 2020-21 financial year.||SRO||Taxable wages <$3m|
|4||SME bank loan guarantee scheme ($250k)||Maximum total size of loans of $250,000 per borrower.The loans will be up to three years, with an initial six month repayment holiday.The loans will be in the form of unsecured finance, meaning that borrowers will not have to provide an asset as security for the loan.||Banks||$50m turnover|
|5||Instant asset write off & accelerated depreciation||Instant asset write-off for asset investments of up to $150,000. The threshold applies on per asset basis, so businesses can immediately write-off multiple assets.15 month investment incentive by accelerating depreciation deductions.||ATO||$500m turnover|
|6||Supporting apprentices and trainees||If you employ an apprentice or trainee you may be eligible for a wage subsidy of 50 per cent of their wage paid from 1 January 2020 to 30 September 2020. You can register for the subsidy from early April 2020. Employers will be reimbursed up to a maximum of $21,000, per eligible apprentice or trainee ($7,000 per quarter).||AASN||Fewer than 20 full‑time employees who retain an apprentice or trainee.|
If you have existing lending you need to manage your bank during these times. When the news is so negative, credit managers are lying awake at night imagining doomsday scenarios for the business clients that they have approved loans for. Now is the time to give these credit managers some comfort that you are on top of your game, even if the news is bad. Here are some points to consider:
- Play out the likely scenario for the bank – this needs to provide risk analysis across all facets. Identify the risks and then tell them what you are doing about it:
- Suppliers – will you maintain sufficient supply of product to continue trading? Can you source from multiple places if one source shuts their operation?
- Customers – are your customers going to continue to buy if they are stuck at home for weeks. Does this apply for all products and all markets. What can you do to expand your sales? Are there positive sales opportunities to come from this crisis?
- Competitors – do you have the chance to get ahead of your competition through this? How are others in your market reacting and what are you doing differently that your clients will recognise and appreciate?
- Reputation – what happens to your business if you go down? What are you doing to ensure longevity of your reputation?
- Staff – what happens to your business if key staff go down? Do you have plans to protect your staff health?
- Business Continuity – If you have a BC Plan then point to it and show the lender who your plan deals with this scenario. If you don’t have a plan, put one together, and then show the bank. They have such plans and they expect you to have one too (rightly or wrongly).
- Amend your forecasts – now is your chance to recast your numbers and change your lender’s expectations. Show the bank what the likely consequence of any “headwinds” will be. If you can afford your repayments regardless, give them this comfort. If there is a scenario that would see you struggle, now is the time to ask for help – before it happens. The banks are under pressure to be conciliatory in this environment. If you give them warning they will likely be much more supportive than if you surprise them down the track.
- You need to know how long you can endure a subdued performance – Perhaps your Accountant can assist with this. If you do see an impact coming (or are already experiencing an impact) you need to show, in a financial model ideally, how long you can last based on your current income and expense commitments. Give yourself and your lender as much warning about how close or far “doomsday” is so you give yourself as much time as possible to do something about it. Look at the commitments you have and determine which ones can be deferred or cancelled. Look at your sales pipeline and work out what you might be able to pull through faster.You then need to be able to show how long it would take for you to get back on track. Often with these sort of events it is possible to last through the main challenge period, but the repercussions last way after the event is over. If you are deferring expenses until the event ends, these expenses aren’t going away. You will still have them for a period of time afterwards and you need to show your lender (and yourself) how long it will take before these deferred expenses are all caught up.
- Reiterate how good the world will be once this is over – In the heat of battle you and your bank can lose site of the positives. A bank is much more likely to hold strong and be supportive when they know that the end result will be extremely positive. They want to back winners. Show them why you are a winner!
If you need help, feel free to arrange a teleconference or webinar and we can work through the issues with you to ensure you get this important communication right. We wont charge for this. We have band together to get through this challenge!
Its a well trodden path that when times are tough Aussie businesses might lean on the Tax Office (ATO) for some cash flow relief by delaying tax remittances. However this might be about to change with the news that Government has recently passed legislation allowing the ATO to publish certain tax debts with the credit reporting bureaus.
Banks hate Tax Debts. If there is one thing that will kill the romance between a business and their lender its a tax debt. You’d get a better reaction with a venereal disease I reckon. Historically, it has been possible however to hide these debts for long periods from your bank because unless they ask for copies of your tax portal statements they have had no other way of knowing. This may all be about to change however.
From 1 November 2019, new legislation now allows the ATO the ability to report to bureaus, however it does give business considerable chance to stop the reporting. The tax debt needs to qualify to be eligible for the ATO to report it in the following way:
- The business must hold an ABN and not be specifically excluded
- It must have debts in excess of $100k and these debts must be >90 days in arrears
- The business must fail to engage with the ATO to develop an acceptable management strategy
So as long as you are proactive in your dealings with the ATO, for now you will avoid being reported.
If you are having or expect to have some challenges paying your tax debts and you are concerned about your current or a future bank’s reaction to this, there are some lending strategies that you can draw on:
- Short term business loans (unsecured or secured)
- Personal lending (home loan extensions, personal loans)
Our team of experts can work through some options with you at no cost for the month of February is this is something keeping you awake at night.
Just when we thought it was getting tough to get Mortgage approvals ASIC has tightened the reins again. By July 2019, when a bank is assessing a borrowers ability to repay their debts and live within their means, they will be required to ensure that a client has sufficient capacity (after they have paid their new mortgage etc) to be able to pay off all credit card limits in full within 3 years.
We see many clients with over $50,000 in credit card limits. This would mean that we would need to add to their monthly expenses approx $1,400 per month on top of interest costs. We certainly advise all clients to have a look at their credit card balances. It might be time to start cutting up some cards and paying hem out!
I’m the first to tell you banks are hard work. I deal with them everyday. But do you think there would be a Royal Commission about our banks if they weren’t as profitable as they are now?
I can’t think of a service/product that only big banks offer, and yet they are market share leaders in pretty much every market.
If they were really the demons they are being made out to be [all the time and for everyone] I don’t believe they would hold their market share. We’d go elsewhere. So why don’t we?
They aren’t the cheapest (for home loans) and yet they hold the major share of home loans.
They play a hard line with credit policy for business but they generally are the cheapest and in the case of the majors they are prepared to stretch beyond security limits unlike non banks.
Whilst they are infuriating, people want to Bank with them. This is why they are so profitable. It’s not a fluke!
Have they wronged people? Yes. But not everyone. Punish them for specific wrongs, but let’s not heighten regulation that makes it harder for people to access credit from these banks. They’re hard enough. Just police what’s there….
Any business excited about the prospect of a bit of rate relief with the RBA rate cut announcement today might not want to “hold their breath”. In our recent discussions with lenders we deal with, it has become apparent that the Business Banking departments of the major banks are under some considerable margin squeeze currently. We have seen in evidenced in recent quotes that we have sought. 6 months ago we were getting some amazing rates quoted for loans secured against commercial property. These were at worst case less than 2% above BBSY, but some were well under 1.5% margins. However recent quotes for similar deals has seen the banks increase these margins to well over 2% and some nearer 3%. The margins have almost doubled.
When we press the bank for a reason why, the lenders we deal with express ignorance publicly but then out of the back of the hand they confess that the risk grade machines have all been turned up. It is unclear to me whether this is an expression of perceived risk, or simply a recognition that the division needs significant profit improvement if budgets are to be achieved by end of September. My contacts do however suggest that rates should drop again after September, which suggests that this is a play for profitability. If this is the case, then the likelihood of business customers getting the benefit of the rate cut seems unlikely to me.
If you would like a review of the rates you are paying why not call for an obligation free discussion and we can give you an indication.
In order to become a great business banking customer, you first need to understand how a bank thinks whenever they look at you and your business. At its most simpliest, banks consider 2 things when they look at your business:
1) What is the probability of your business defaulting on your loan agreement – ie not making a payment, not doing what you said you were going to do (Probability of Default of POD)
2) If you do default, what is the probability of the bank losing money as a consequence (Probability of Loss Given Default or PLGD)
To assess this the bank (again most simply) is looking at 3 things:
1) Are MANAGEMENT worth backing
2) Will the business achieve DEBT SERVICING requirements
3) if things go badly, what SECURITY can the bank take to ensure it gets its money back
So how do they measure and assess these things? This is the challenge of banking. Security is easy – your assets have a value, usually provided by a third party. Banks will then apply a policy that dictates their appetite for a particular asset, based on years of experience in good times and bad. The bank feels assumes that it is very unusual for residential property to drop more than 20%, so they’ll lend you 80% of this asset. Commercial property has been more volatile so they might only lend you 65 or 70% of these assets. Business assets have value too. A bank might be prepared to lend you 60% of the value of your debtors for instance.
Debt Servicing is also a calculation. Banks have established policies dictating how much interest you can afford relative to your business’s Earnings. This is an interest cover ratio. They might also speak of Debt Service Cover – this looks at your Earnings and compares it to your interest and the principal reductions (loan repayments). Banks like to march into the future facing backwards, so these calculations are usually applied to your historical results, but sometimes if the future is a high probability of occurring (ie you have some new contracts or assured sales) they might give you some credit for income yet to come to fruition.
Management is not a number, or a calculation. Good management is a driver of success, this is clear, but how do you measure it? Every interaction that you have with your bank is being watched with this in mind. Management is often the small, intangible observations. It is because of this that traditional bankers have trouble conceptualising the possibility of automated business credit assessment. The cleanliness and orderly presentation of your warehouse, your ability to produce end of month financials within 5 days of month end, your propensity to look the banker in the eye when you shake his hand and say hello are all intangible indicators. Things like your knowledge of your market, your hunger for success, your rapport with staff. It all ties to management.
Banks are large organisations and full of people required to make decisions and the bank wants these decisions to be consistent. The more consistent the decision making the easier it is to measure and improve performance at a portfolio level. So banks need to be able to assess management using numbers and information that is readily available to them. Hence, the bank relies very heavily on your financial performance as a determinant of management capability. Are your sales growing, are your margins consistent / growing, do you keep your debtors in check and your inventory levels at a sensible level. They also look at your account performance. Are you staying within your limits? Are you making your payments on time? Is your business reducing its reliance on debt over time (ie producing positive cash flow)? These are all measure that help the bank infer how well you manage your business.
There are 2 key triggers that suggest things aren’t good. Tax office debt and late submission of your financials. Do either of these and you are automatically deemed to be a very high probability of default.
The next time you ask your bank to review your pricing, have a think about how you might look to them. Get this right and you uncover the secret to cheap interest rates….
Lets make 2016 the year businesses realised that they are only setting banks up for failure if they believe that their Relationship Manager has time to manage their bank relationship the way a business owner would like. Once upon a time, when bankers had manageable client portfolio sizes, you could expect your manager to be proactively anticipating your every need and getting to know your business and your industry. Today however these poor people can only manage the squeakiest of wheels.
The added frustration then comes when you have over considerable time, educated your manager about your business and they leave and you have to start again!
Its time for a rethink. These circumstances aren’t going away – if anything they will only get worse. So here are my top tips for what you can do about it:
1) Build your advocacy base
In any lending relationship with a bank there will be between 5 and 10 people in the bank who have a vested interest in your success, be it that you contribute to their P & L with the interest and fees you pay, or you contribute to their risk portfolio (ie potential loss). You need to identify who these people are and get to know them. For example, we have a client who manufactures truck accessories. They have a relationship manager, and that manager has an assistant. This has historically been the extent of their bank relationship. However as we demonstrated to them, they also need to be known by the Relationship Manager’s Boss ( the regional/business centre manager), the State Manager, The Credit Manager and the State Credit Manager, The Working Capital Specialist (The client uses a trade finance product), the Equipment Finance Manager (The business is continually buying more plant and machinery), The Merchant Services/Commercial Credit Card specialist and the Insurance Specialist.
One of the biggest issues we deal with is where a new Bank Manager takes over our client’s account and the client is not really known to the rest of the business centre. This is an alarm bell for the new manager who has a period of time on a new set to blame the last guy for poor credit decisions. If however the business centre knows you and you have advocates, the new manager doesn’t feel as exposed in supporting you and borderline credit issues get absorbed more easily.
2) No Surprises
Once you know who you need to build advocacy with, you need a strategy for getting them on side. This is most effectively done through a regular information session. Depending on your circumstances this might be monthly, quarterly, half yearly or annually, but it needs to happen before you release the financials to the bank in line with the bank requirements.
At this session you invite your 5 – 10 advocates sit around a boardroom table (perhaps over a light lunch) and you present to them everything (good and bad) that has happened to the business and industry in the last quarter and everything (good and bad) that is happening in the next quarter. This “force feeding” of information does 2 things: it shows the bank that you are in control of your business and are a worthy person to be holding their money, and it forces you to know what is going on in your business ensuring that you are a worthy person!
3) Focus on Cash
In talking to the bank at the information sessions and in between, you need to show the bank that you are as obsessed with cash flow as they are. Remember – cash flow pays back loans, not profit. Show the bank that you manage your business to maximise the cash that it produces.
4) Incorporate your Accountant
Your Accountant knows your business much better than the bank. There is a natural inference that your business is well managed if the Accountant is visible. Invite your Accountant to your Bank Information session. Everyone will benefit.
5) Buy as much as makes sense from your bank
The best way to get noticed (and loved) by your bank is to be a profitable client – one that would leave a hole in the banker’s P & L if you were to leave. So buy as much as you can. If they have an insurance policy that is cost competitive, buy it from them. If you need commercial credit cards, get them from the bank. Of course it has to make sense commercially. If you have friends who need a new bank, and your banker is reasonable, refer them in (maybe through your broker :))! Tell your debt advisor/ broker if your banker is a good one – we are always looking for good bankers to send deals to.
Only once you have done all of this are you justified in complaining about your banker being no good!
Do you have a good banker? We’d love to hear about them. Please let us know!!
Pearl Finance are a specialist Debt Advisory business that help Accountants to provide banking support to their clients. If you are not happy with your current bank relationship, contact us for an obligation free discussion about things you might be able to do to fix it, that don’t involve the hassle of moving banks.
Banks are hungry for strong performing bank clients and the pricing that they are willing to offer currently is amazing. But there are some traps that businesses fall into when going after a better deal. The number one problem occurs when you are not attractive enough to warrant other bank interest. Tenders are not for you. This is only the domain of businesses that are performing really well with strong balance sheets.
If you do fit this description then here are 5 points that we assert businesses should consider when running their bank tenders:
1) How do you want your current bank to perform?
Moving banks is annoying, time consuming and distracting. Most businesses only move banks when either there is a material commercial advantage in doing so, or the relationship is simply too toxic to be able to continue partnering together. If you business isn’t in this position, then you need to consider how much chance you want to give you bank to retain your business. Often offering them a right of reply when they haven’t come in the best is worth doing. Your existing bank will understand that there is a price premium that most clients will pay to avoid moving, but this will diminish the more attractive you are and the more committed to are to moving banks if the price is right.
2) Give enough information to get useful offers
Often businesses provide minimal information and then after choosing an alternate lender find the process drags so much that it becomes too hard. Businesses need to be careful of this as the existing bank may well be left drawing a conclusion that no-one else wanted you, and this then causes them to start questioning their own commitment to the relationship.
You need to get the tender response from the banks checked off with their credit departments. The person with the cheque book in the bank needs to be as excited about your business as the relationship manager that you deal with. Only then will their tender response we worth considering.
3) Ask for what you need
Often businesses going after funding don’t really know what they need, and the request of the bank can then become quite meaningless. You must include with your submission a 3 way forecast (ie a forecast that shows what you expect your Profit and Loss to look like, as well as your future balance sheet and cash flow forecast) that shows the loan balances, and the repayments that you plan to make. These days a bank won’t give you an Overdraft account just because you want a rainy day fund available. You need to show that you need the funding that you are requesting. If you don’t do this, the tender responses will all end up being different and you will have a devil of a time trying to compare them all.
4) Use the same inputs to compare the results
Once we have received our tender responses, we like to prepare for our clients a table that runs the same scenario past each response. Whilst the results will be hypothetical, they provide a fair comparison of the responses and allow management to be able to view the key differences in the cost consequences of each response.
5) Be prepared to move banks
You need to understand before the process begins on what basis you will be prepared to move. Will you move to save $1,000, or does it need to be over $10,000 for instance. Also, sometimes it isn’t cost that is your key criteria. You might want a bank that is most diligent in their adherence to your “rules” in the tender – ie responds on time in the correct form, as an indicator of commitment. You might want to select the lender that you enjoy the company of the most. You might want the bank with the best Transaction Account structure, or merchant fees. Regardless of what your selection criteria is, the best results will come to you if the existing bank wants to keep you, but knows you are serious about moving. Everyone works a little harder then to win!
If you would like to discuss your bank tender strategy with an expert, please call. We would be happy to give you some pointers to allow you to deliver a better result, even if you don’t want to use us to assist.
We are regularly asked by clients to comment about the state of interest rates and whether it is a good time to fix. As bankers we are more immersed in this than most however our crystal ball isn’t any better than anyone elses. That said, there are a few signs that have us thinking at the moment:
1) The recent employment stats show that Unemployment has dropped recently to 6.1%
2) The AUD seems to have stabilised and even come back slightly, back over 78 cents
3) The long term interest swap rates seem to be creeping back up. The 2 year rate was below 2% a week or two ago and yesterday it was 2.07% and this morning it was 2.09%. This is still less than the 90 day rate of 2.25% but the trend is upward.
Wouldn’t it be nice if Australia started to smile again!
I caught up with a friend recently who is a fixed interest broker – ie he sources great deposit rates for clients. Most of his clients are large corporates and institutions. When I asked him how business was going he was quick to admit that things were tough for him at present. He cited to main reasons for this:
1) The banks have too much cash – they can’t lend it out fast enough at present and hence deposit rates are the lowest they’ve been for a while.
2) The need for banks to risk rate depositors, and to hold capital to mitigate against the risk of large withdrawals, is detracting from bank’s willingness to accept large deposits from institutional clients, especially the Super funds.
At the time that he shared this with me I mused at the possibility of the banks lending appetite increasing but didn’t think much more about it. However in the last couple of weeks it has really started to happen! The appetite however is not a credit risk expansion. The banks are still very (perhaps too) sensible here. The expansion comes in their willingness to reduce prices to win good commercial property lending opportunities.
A year ago I was telling clients that if they got a rate margin over the market rate of BBSY of less than 3% for a commercial property secured loan then they were doing ok. A great rate contained a margin less than 2.5%. 3 months ago I was telling clients that they should be expecting a margin above BBSY of approx 2.00% if their bank wanted them to stay.
However in the last couple of weeks I am all of a sudden seeing the banks willing to go below 2.00%. Given BBSY is currently approx 2.3%, and I am getting rates on either side of 4% total. Wow! This means that we are seeing margins between 1.6 and 1.9%. The credit criteria to get these rates needs to be high. These aren’t rates being offered to underperforming businesses. They are however being offered to investors with strong rental returns and even to Superfunds wishing to invest in commercial property.
“How do I get some of that action?” I hear you ask. Tender. Its time consuming but if your credit is strong enough, then it will pay dividends. If you would like us to provide a no obligation, no cost assessment of your likely success at running a tender, please get in touch!
I recently made a observation that surprised me a little. Businesses with bad bank relationships more often than not have little to no relationship with their accountants.
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.
(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:
Pearl Financial Services Pty Ltd today announced a free service to assist those businesses impacted by the Victorian Bushfires with ensuring that they obtain the support required from their banks.
“Our hearts go out to the families affected by this catastrophic event.” said Pearl Financial Services General Manager, Nathan Keating.
“The sheer terror experienced by these people and the mountainous task that they must now face to rebuild their lives is unimaginable.”