With two months of 2012 already passed we take the opportunity to reflect on the previous year and confirm the positive outlook we have for 2012.
During the first half of 2011 whilst lenders had liquidity they approached business and commercial lending with caution. This had a direct effect on the ability of businesses to expand or capitalise on new opportunities. This coupled with the flow on effect of the Christchurch earthquake certainly created an air of caution and nervousness for both borrowers and lenders.
The Christchurch earthquake had a nationwide effect on people’s appetite to consider new debt for business expansion and/or acquisition. We noted a significant decline in enquiry level within two weeks of the February 2011 earthquake and this continued for the majority of the year with the level increasing in the last 60 days of the year.
Over recent months we have seen an increase in people looking for funding. It is interesting to note particularly over the last 90 days, that we have noticed a significant increase in buyer activity in the accommodation sector. A combination of freeholds, leaseholds and management rights changing hands. Whilst the market has been particularly challenging for businesses in this sector, all properties/businesses where we have sourced funding for our clients have displayed a sound profitable historical trading history in what has been a challenging market.
It is our view that the interest rate market will remain stable for the balance of this year and whilst there are future rate increases predicted we would see these as a gradual process as demand increases. Like all, we feel the rebuild in Christchurch will obviously have a roll over effect to a lot of other business sectors throughout the country. The one area continuing to see challenges is that of sourcing development funding and we continue to stress to clients that it is essential to ensure all facets of a development project’s funding application are fully covered.
What we have noticed particularly in the trading bank sector is that if your bank declines your lending request it does not mean your proposal isn’t soundly based. We have a saying that all banks are not equal as whilst they may have similar lending guidelines they do have differing views on different industry sectors. So where one bank is not comfortable they may well decline your application despite your excellent track record and long banking history with them. A bank is a supplier to your business no matter what sector your business activity operates in and I am sure if one of your suppliers was not performing and affecting your business’s ability to earn a profit you would look for a new supplier that allowed you to go forward and capitalise on opportunities.
Some examples of recent bank funding sourced for clients where their own bank would not assist or the terms and conditions of assistance were unsatisfactory to the client.
- Restructure of a significant management rights operation which covered land, building and business entity – total funding requirement $2.million.
- $1.7 million refinance of a high value waterfront property which included interest servicing provision pending its future sell down.
- $600,000 for owner occupier to purchase own building where the borrower had limited historical servicing evidence.
- $700,000 for a preschool business which was in a growth phase however historic trading was not sufficient to support the debt servicing.
Outside the trading bank sector it is fair to say that following the demise of so many finance companies there is not the diversity of funding options available particularly for those seeking funding to start a new business or acquire an existing business. This also applies to the property sector requiring us all to be far more resourceful in obtaining that necessary funding. Certainly, professional assistance in preparing funding applications is a critical factor together with ensuring all aspects are reviewed from all angles.
We are also encouraged that new lenders are starting to appear particularly for business stock and working capital requirements. The interesting and pleasing factor of these new lenders is their general lending policy which sees security limited to the business being funded excluding the borrowers residence as collateral.
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