What’s the biggest risk factor for business owners with finance at the moment?
We hear a lot about access to capital & the major banks being obsessed with compliance & responding to the Hayne Royal Commission. For us, with access to hundreds of quality financiers, this is not too concerning.
Is it Interest Rate movement? Well, given the record run of stability in the official RBA rate and the macro-economic outlook we don’t see this moving too far north anytime soon (the caveat being a liquidity-linked shock- aka GFC version 2).
For us, the two key risks we see in finance today are –
1. Time to “money”
2. Time for “money”
Time to money –
There is no doubt that it’s taking more time for most traditional banks to review, assess and (hopefully, eventually) approve finance applications. There are a number of causes of this trend but basically it’s due to –
(a) Higher expectations around compliance & information inputs; and
(b) Separation of duties within the big banks
Higher expectations –
Over the last couple of years the major Banks have moved from a “Trust, but verify” approach to a “No trust: verify absolutely everything” mindset. Unless you are dealing with an exceptionally switched on and well organised Banker there are fairly good odds you’ll be getting call after call asking for more information right up to settlement day. We are hearing that the average turnaround time for loan assessments by the major banks is now out to around 60 days – and that’s for a simple deal!
Separation of duties –
The second contributor to the delay in “time to money” is the obsession of Banks with segmenting who does what. Fifteen years ago, a loan application was handled by two, maybe three, people: Banker, Banker’s assistant and maybe someone preparing the documents. On last count, we’ve seen this chain of people for a single loan application move to as many as twenty (yep that’s 20.. two zero) people touching the file. It’s the old problem of when you add more links to the chain it tends to get longer (and weaker!)
Time for money –
The second key risk we see is what we call “time for money” – essentially the ever reducing tenor of loan facilities. Back in the day it was fairly common to get a five, ten even twenty year loan term – this was particularly the case for good quality investment assets.
Today, the major banks are becoming more and more likely to offer funding for one, two or three years. The reason they do this is to reduce their internal capital costs and maximise their short term revenues (and profits). It also provides the Banks with the opportunity to ‘change the game’ by amending loan repayment horizons, rates, fees, conditions and covenants at the (earlier) expiry of the loans.
Whilst we hear so much from the big banks about “putting the customer first” what we actually see from their actions is a removal of client funding & investment certainty. As an example, if you’re purchasing an investment asset with a twenty year investment horizon why would you want to repay all of the debt in ten or fifteen years?
How STAC Capital can help –
1. We take the time to Understand your needs & goals in the short, medium and long term
2. We Partner with you and your other professional advisors to make the “Time to Money” process as simple & efficient as possible
3. We Support you in defining the options & negotiating with the various funders to get the best “Time for Money” outcome
If these are issues for you then you need to talk to the team at STAC Capital.