Have you had a chat with your bank lately?
A number of local businesses report their bank has reduced or eliminated their overdraft, without warning. Apart from being just plain rude, this has sent a shudder through the commercial sector as small business wonders where they will obtain the finance to stay alive, much less grow.
The Global Financial Crisis (GFC) is actually not over, despite upbeat murmurings to the contrary. Banks are being careful and business owners are finding greater than usual scrutiny over their accounts.
Money is still available but it will be much harder to get. A good management plan, cashflow records, and a forward business plan that has been recently updated are essential before you even lift the phone to make an appointment.
Your banker will want to know that all of your financials are lined up and current. You may be required to show additional collateral to back up your request for credit.
Banks have indicated stricter underwriting criteria, higher loan-to-value ratios, more equity required to get the loan and tighter requirements in the loan documents for existing business. For new business, or those without a track record, it will be even tougher.
Federal stimulus money has been of help and lending rates are reasonably attractive at the moment. You might be able to re-finance certain deals to free up some cash for new ventures.
One of the big pluses for us in Western Australia is the new resources boom as money from the big miners and all the subcontracting companies begins to flow again. The downside is that workers are going to be harder to find, which may limit your growth plans, and inflation is a concern.
There are upsides and downsides to everything. There’s no point in trying to hide from your problems.
Maintain a good relationship with your banker. Discuss your business and your long-term plans well before you might need finance. Be open and honest about your concerns as well as your dreams.
Banks aren’t out to watch you fail, so if you’re having a problem, go see your banker now.