Business finance has never been in the news more than it is now and justifiably so.
The lack of liquidity is having a stifling effect on businesses looking to restructure finances to provide liquidity in today’s market, and it could have a knock on effect in many ways. An incredible £76bn of commercial property loans require refinancing before the end of 2010.(1) If they are unable to achieve this, businesses and property will come under a double dip pressure.
There are concerns of banks having significant category hits. Not surprisingly they are now finding out that they did not know what they had invested into. This is causing them considerable uncertainty in terms of their own balance sheets and exactly what they are exposed to. Naturally they will be very concerned about what they will now invest into.
I am not in the habit of catching falling knives, and this market is falling, and it’s only with clarity of what is really out there that banks will feel the ground under their feet. If that’s the case caution will be key, tight lending during 2009 and into 2010 whilst batteries are recharged and on to a loosening of capital later in 2010.
With uncertainty it’s difficult to see any other alternatives.
In the meantime however, we are seeing reasonable lending policies with banks for appropriate projects, but much depends on how well they are approached. A mish mash plan isn’t going to encourage a manager to take too much time on studying the feasibility of extra lending, but a well thought through project would.
Consider that many banks are still saying they have liquidity and plenty of it. They are paying little or nothing to savers who have deposited with them, but borrowers in some sectors are being charged as much as 6% over base, even when they have an excellent company or project.
Banks are currently concerned about certain sectors such as development finance, retail and pubs. If you are applying from within this sector, you need to look very closely at how you present yourself.
Outside of that there are numerous opportunities and banks are more than willing to lend. As I said its not a case of landing in with your A4 ‘dream sheet’, more a case of a well thought through plan that makes sense. The manager will then invest his time and energy to deal with it. After all with profits to be made with base rate at 0.5% they want to get the money out there.
Another key is to look at using the other forms of finance available. In the last few weeks alone I have seen many directors with residential mortgages and directors loan accounts who could easily restructure and receive tax relief on their residential mortgages.
I have also seen businesses with cashflow issues who have large clumpy poorly managed pension funds performing backwards at best.
At the same time they have a business property that they own and cannot raise finance on it to inject into the business. If they used their pension to buy the property, they would release all the cash in the property and also the rent they would now pay would be going into their pension.
There are also a number of government funded finance objectives but once again you need to fully understand exactly where to go with that as that’s a language in itself.
As I said to public sector friend of mine recently, wouldn’t it be great if google invented a ‘google translate’ page to translate from ‘public sector speak’ to private so we all knew each other. He said ‘vice versa’!
Approach this sector correctly and you will find there are a range of options available to you. It may be hard work making your way round, but markets like this are hard, and like in a storm the strong trees survive only to enjoy much more light in the future years.
Source(1) investor’s chronicle
About Peter McGahan and Worldwide Financial Planning:
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