Rob Kirkpatrick as a Director

Rob Kirkpatrick


What will be the impact on Australian business of the recent Reserve Bank decision not to reduce the cash rate, despite market expectations?

While the RBA said there had been no significant deterioration in the economy since its November meeting, it noted that Europe “remains a major downside risk for the global economy”.

It pointed out that while the local economy remained vulnerable, it would have to deteriorate significantly to warrant a further rate cut.

Even so, many still expect that as certain sectors stall, jobless numbers grow and the economy stagnates, there will be a further two rate cuts of 0.25% this year.

Whatever the decision, the simple fact is that borrowing money in 2012 is likely to be just as tough as last year.

Lenders still want to lend money, but now more than ever they need to minimise any risks they undertake when backing you and your business.

The harsh reality is that for most of us (outside the mining and resources sector) times are tough and likely to remain so for a while longer.

Manufacturing, retail and construction are doing it tough and exporters are certainly not being helped by the strong Australian dollar.

With fears of deteriorating conditions and possible fallout in Europe leading to a new credit squeeze, we have seen several lenders increase their lending rates.

My banking contacts have told me that many business files are under review.

Property revaluations are being ordered and those borrowers with under-utilised facilities which they had set aside for a “rainy day” could be in for a surprise to find that those may be scaled back or withdrawn completely.

How to retain your existing facilities or access capital
On the very likely assumption that capital will continue to be hard to access, here’s what business owners can do to retain their existing facilities or access new funds:

  • Review all your current facilities. Are they still suitable, relevant and applicable to your business in its current form?
  • Check bank loan conditions and covenants. Are you operating within the original agreed bank loan conditions and any stated covenants?
  • Plan for maturing facilities. Are there any facilities close to maturing (e.g. those approaching the end of a fixed rate or interest only period)? What impact will the new repayments have on cash flow?
  • Plan for one-off payments. Perhaps some equipment finance facilities are coming to the end of their term with large final balloon payments falling due. Have you allowed for those large one-off payments in your cash flow or will you need to refinance the balloon amount?
  • Know your property security value. Has your property security dropped in value? If so, will you need to top up any facilities with cash? Can this be done at short notice?
  • Consider other forms of capital raising. If you need to go to investors, do you have a clear plan that allows them to see the opportunity?
  • Re-establish contact with your bank manager. Update them on your business. Don’t for one minute think that they aren’t aware of what is going on. The bank is a key stakeholder and behind the scenes is regularly reviewing your business activity and industry sector. See Dom’s blog post for tips on how to be proactive and keep the lines open communication with your Bank.

If you are approaching the bank for renewed facilities, ensure that you present them with comprehensive information, well in advance of the required finance date.

By doing your own strategic planning early, you won’t be caught out if the application takes longer than you anticipated.

In the current economic environment, banks are looking for quality business, not just volume.

Lenders with limited funds will support those applications that are well presented and prepared.

With so many conflicting influences affecting our economy and causing uncertainty, this is the new norm.

Rob Kirkpatrick is a Client Director at Vantage Performance – an award winning, national business transformation and turnaround firm with proven success in solving complex financial, operational and people performance issues. 


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