Financing through the GFC

An article by Frank Higginson of Hynes Lawyers

It is a very rare business or property indeed that is unencumbered. If you are lucky enough to be in that position, there is no need to read on. For those of you that aren’t, there are a few new rules that you need to know when dealing with your financier(s).

Credit is tight and will remain so. There is a significant absence of competition in the marketplace amongst the major banks. This means banks can really pick and choose who they have as customers.

The most important people now in the banking world are credit managers who have sign off on any substantial finance approval. They are not swayed by personal relationships and live by the creeds of interest times cover, debt serviceability and loan to value ratios.

So how do you manage what has become a more difficult process - whether you are purchasing an asset or going through a refinance or under a review?

These are some of the golden rules that have become apparent to us over the last 12 months:-

• It is tough, and will remain tough, out in the SME world. When times are tough, involve your banker in your problem. Get them to troubleshoot the issues with you. This is certainly a better approach than the alternative of putting your head in the sand and hoping for the best, because if the best doesn’t happen, then you are going to be referred straight to ‘asset management’, or ‘strategic business services’ (or some other euphemism for where the bad loans go).

• If you have ongoing reporting requirements, make sure you meet them. Give your financier the figures that they ask for (and are more than likely allowed to demand). Don’t make them chase you – this is one of the biggest red flags that bankers act on.

• Take the financial pain if you have to. Coming to the hard personal decision to sell an asset is sometimes what needs to happen. Hanging on to the death – with the appointment receiverships and the like - becomes very, very expensive. In some circumstances the commercial decision to get out simply not owing the financier any money has proved to be the right one for some of our clients as the market remains tough.

• Personal relationships still count, but not anywhere near as much as they used to. If you have a poor relationship with your banker, and you strike trouble, then look out. It seems to us the people the banks are more likely to sink are the ones that push back on what the banks ask for.

Sometimes there is no magic bullet to financing problems. Unfortunately, that is just reality at the moment. Until credit starts flowing freely again, that will remain the case for some time.

Frank Higginson is a Partner at Hynes Lawyers where he heads the community titles team.

Commencing practice in 1992, Frank’s focus has been purely on property law with a specialisation in strata matters including management rights, body corporate law and property development.

For more information visit:
http://www.hyneslawyers.com.au/articles/the-different-definitions-of-a-community.html