With a fractured Covid affected economy across our nation what is the current lending environment like and how do the weeks and months ahead look?
Pre-Covid the economy was moving along nicely and for many their businesses and outlook were about stability and growth, amazing how less than 6 months later we are where we are…..
A Covid Checklist of questions for all asset finance applications are now mandatory from the major banks and other financiers and below is a sample of the types of questions being asked and issues each business must consider with their responses.
The more you can show the lenders that you know your business and the impact of Covid is now just as important as the traditional assessment of transactions (ie. length in business, asset backing and historical ability to service).
Has your business requested/received COVID related payment deferrals with any financiers?
If you answer YES then any new lending for your business from main stream, low rate financiers is going to require substantially more information such as …. BAS statements, ATO portals, Bank Statements as well as a full suite of financials with finance approvals considered on a case by case basis.
Financiers will need to be satisfied that deferring payments was based on a conservative approach to managing your cashflows through times of uncertainty including whether under accountant advice as opposed to any clearly evident hardship including your industry and/or location.
If you have recently completed a 3 month deferred arrangement as offered by some lenders at the start of this pandemic then you may still be required to show a further 3-6 months of re- established monthly payments before they lighten up on the information required.
If you are still on the 6 months deferred arrangements then all of the above information will be required with some financiers still unlikely to favorably consider your finance request without ‘catching up’ and repaying all deferred payments at a minimum.
How has your business been impacted by Covid either positively or negatively?
Impacts can include cashflows, contracts won or lost, related industries, revenues and profit changes. If you can get past Question 1 above then this is the part you need to nail and show them that you know your business and the environment you operate within – the financiers ‘gut’ assessment from this section is worth more than you think.
If negative impact on your business can you ‘self declare’ your ability to meet new finance commitments?
The financiers will need to be convinced that if they lend, you confirm your ability to meet the ongoing repayments despite everything going on around your business.
Advising of access to overdrafts and other working capital sources if needed will also assist.
Whilst the answers to the above questions will differ for every business the age old ‘pub test’ approach to lending still applies – if your business is sound, not in any evident financial distress and the reason for taking on the additional finance makes sense then there are still competitive low rates available in the market today.
Financiers are still under pressure to lend albeit on a more conservative and financially intrusive basis than in previous years with prime lenders reverting to ‘’old school’’ loan assessments (ie. ‘’low doc’’ options have reduced in size, availability and qualifying criteria).
It is clear now more than ever that it is crucial to have a good banker or adviser/broker that really understands your business and knows where and how to navigate you through this evolving lending landscape.
Mark O’Donoghue, Founder & CEO Finlease
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