2020 has been one hell of a roller-coaster ride so far. Economies coming to a complete halt, countries shutting down their borders, people panic buying groceries and toilet paper, stock-markets crashing and unemployment levels skyrocketing across the globe. Lots of uncertainty and panic. Are we headed for a recession? What will the long-term effects to the economy be of the Covid-19 response worldwide?
The government has done it’s best here in Australia to stem the flow with its economic stimulus packages, but what will the impact of this virus be to our financial sector , and how will it impact the appetite for banks and private lenders to lend money to businesses and developers?
Let’s look at the Banks first:
The first thing that banks are going to do is look after their existing clients.
Then they will try to work out how to implement all these new measures the government has announced. Aren’t we all?
Now depending on the size of your business, requirements will vary from bank to bank, but best thing to do is call up the bank and explain the issues you are facing and ask for payments to be deferred. If you ask you shall hopefully receive. Getting overdraft increases should also be easy to get, so once again ask and hopefully you shall receive. Do your due diligence, show them what you have done to minimise expenses and costs, and get your cashflow forecasting sorted.
What about the Private Lending sources?
Some have seen the glass half empty whilst others see it as half full. Some have withdrawn from the market and are sitting on the fence to see what happens, whilst others are very much keen to write business. As always some see opportunity and abundance whilst others have a doom and gloom mentality with their approach.
Supply and Demand is starting to become a telling factor however and whilst the last 12 months has seen a lot of money coming into private credit – there is talk of pricing increases.
So what should you do? What should your plan of Action be?
- Talk to your Trusted Advisor, financial advisor, Accountant first. There is a lot to get your head around so don’t try and do it all yourself. Get professional advice. I mean the bankers themselves are still trying to work it out.
- Before you talk to your accountant or Advisor, be prepared: Work out the potential impact to your business, look at how your revenue will be impacted, look at how your staff will be impacted
- Plan out how you will manage and control operational expenses
- Review all the incentives and subsidies the government is offering.
Getting through this crisis is possible but do keep in mind, everyone has been impacted by this and there is a huge knock-on effect everywhere, overseas staff and call centres have been rendered useless, timeframes will therefore blow out and patience will be required. It will be a tough time, but you should be able to borrow money to get you through this crisis.
Can you still borrow money?
If you are a business owner:
Yes but be prepared to show a detailed risk assessment to the bank to show how the business will get through the COVID19 crisis, including the likelihood of a Stage 4 lock-down, as well as how you are expectingto survive a recession that may well be on its way.
If you are a property developer:
YES but the focus will be on lower-risk deals with solid operators.
As already mentioned previously above some have pulled out and are sitting on the fence. Others are still very much doing business, so now more than ever is a time to lock in funding ASAP. Do your due diligence, planning, financial forecasting and you should be fine.
If you are looking at commercial property:
YES, but there is certainly a massively increased focus on who the tenants are. A lot of industries have been affected some more than others (think travel) so there will be a lot of scrutiny on the tenant, and their access to money.
