Financing, the GFC and Your Business

As we move into the New Year is it an opportune time to have a look at where we are in the crisis that has been hanging over our heads now since November 2008. Whilst certain things have settled down and there are some positive signs indeed – the crisis is now taking on a familiar feel with the Banks reacting in the same way as they have when coming out of previous financial ‘meltdowns’.

There is a pattern that the financial markets follow and I’m sad to say that history tells us that it will take 5 years for the banks to get back to ‘normal’ liquidity and regain their appetite for lending to business.

We have seen this over the last 12 months with lenders tightening credit. Businesses likewise have not necessarily wanted to take on large increases in credit in such uncertain times. If you had to upgrade a vehicle or you won a new contract it is fair to say you may have experienced either difficulty in obtaining the finance, more security is being sort or the banks are seeking a lot more additional information from you. Also the time taken for lenders to consider your application has extended.

Where has the money and Govt support gone

Governments all over the world gave substantial support to their banks and you might wonder where all this support went. Most of it finished up back with the respective governments on deposit as the banks have not been willing to lend because they did not know if the borrower would have a job tomorrow and they had enough homes being handed back they did not want any more. Also borrowers were not willing to take on debt because they did not know if they would have a job. The demand for credit dried up and the willingness of the banks to lend disappeared.

The upshot of all this is that banks have been given financial support but the funds has not found their way to businesses and households to kick start the economy. Hence jobs have not been created and apart from the stimulus packages there has not been much genuine increase in consumer spending.

The stability in the banking system has helped to increase assets values with share and property prices rising but with limited lending available there is insufficient funds flowing to support asset prices into the future. The banks raised a lot of their funds from other lending institutions by way of the securitised markets; this avenue of raising debt has disappeared so banks have lost access to about 35 – 40% of their fund base. This further supports their need to ration funds as they cannot generate that level of customer deposits. Hence we are seeing the banks margin on loans to business now at a level not seen for nearly 20 years.

2010 will see more of the same from the banks. You may find that you need to rely more and more on an experienced finance broker such as us to give you access to those lenders who are willing to part with their limited funding and support small business’ to grow.

It is important that the person you deal with has access to all possible lenders, something that our firm has with over 14 Banks and Finance Companies. We pride ourselves on our service and a good idea is to talk to us about establishing a pre-approved ‘line of credit’ now to cover off onyour funding needs over the next 6-12 months. Call our office today to discuss.

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