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01 February 2012
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Optimism or Pessimism - Is it time to move forward and "make things happen"?
Since September 2008 when Lehman Bros led the collapse of the American banking system on the back of the then sub-prime mortgage debacle that originated in 2007, yes if you have forgotten, that’s how it apparently all started, the O and the P words have become synonymous with the global economy and worldwide conjecture as to the progress, pace and shape of the long and winding road to recovery.
Some three and a half years on and still negotiating numerous hiccups, obstacles, impediments etc collective world opinion is still one of “sitting on the fence” , or wishing to “ have a Bob each way “.
Despite this continued conjecture and uncertainty the New Zealand economy continues to hold firm and resilient in a volatile world market as it continues on a gradual and steady recovery into 2012 and beyond.
Our recovery remains underpinned by strong demand for our commodity prices, being less reliant on the US and Europe having hitched our wagon to the growing Asian economies. Whilst our NZ dollar remains high relative to our trading partners we are still on target to achieve record commodity export earnings to June 2012.
With the support and improving stability of our commodity earnings and an underlying view that Europe (aren’t we all sick to death of that word, let alone its mate Greece) will be sorted out in one form or another, it is expected that our NZ$ will remain strong throughout 2012.
The OCR remains on hold at its record low rate of 2.5% until at least the end of the year. Inflation remains weak and is well under control and Bank interest rates remain low with a number of the major banks having cut fixed mortgage rates recently, floating rates being more closely linked to the OCR.
Consumer confidence, having been lumpy in the last six months is being currently buoyed by the summer season and the recent pick-up in house and farm sales both in volumes and prices, with the Auckland residential market already above the peak of 2007 and expected to go higher.
As the economy strengthens rebalancing is important going forward. For many businesses right now focus remains on costs, however to move forward the trick will be to look for opportunities, to find ways to do business and thrive in a flat economy where good timing is important, as ultimately a cost focus doesn’t offer a long –term path for any business. Growing revenue is the way forward.
Don’t let your bank suffocate your business in today’s environment!
Almost all businesses in New Zealand today, whether they be commercial, industrial or rural based will have a banking relationship with one of the big four Australian banks that dominate business here in New Zealand. Traditionally these banks have provided a one stop shop for all finance requirements whether for business or private means.
In today’s environment however if you have not diversified your finance portfolio away from this one stop “full wallet” policy, access to credit through the banks, even for many existing customers with good track records, can still be difficult.
In recent years, access to alternative competitive non-bank, first tier funding has been very limited, if not impossible. There are many good quality businesses and business owners out there, be they commercial or rural based, who have just shown they can survive one of the most severe economic downturns in a generation. However in today’s current environment they now find that their existing financier may be suffocating their business or preventing expansion at a time when opportunities and conditions for such are most prevalent.
Now in 2012 is the time for these operators to take advantage of the many opportunities that are presenting themselves, to move back into growth mode with specialist cash flow lenders that want to support them by ensuring they have the funds they need to refinance existing facilities, support new initiatives for working capital, acquisition of additional businesses, fixed assets and property etc.
Global Pacific now has available a bundle of such products, to either be used individually or as a package to enable clients to consolidate or expand their finance portfolios, providing considerable flexibility over current restrictive bank criteria.
Key features of the new commercial finance products
- Stand alone, first mortgage only products, with or without collateral security requirements. Will allow second mortgages in behind.
- Specialist funding for refinancing, lending for acquisition, property and fixed asset purchase and working capital, for owner occupiers. Need at least two years trading history. Property development funding in select areas only.
- Up to 75% of LVR. With the support of a strong trading business funding of 100% of purchase price may be possible.
- Up to 65% LVR on business acquisitions MBO funding (management buyouts)
- Loan Size from $200,000 - $5.0 m plus
- Interest only for 2– 3 years or P & I options.
- Interest rates 8.0% - 12.0% p.a. (depending on risk profile)
- Application fees 1.0%
- Valuers mortgage recommendation not essential
- Flexible credit history requirements.
- Available for properties/ businesses located nationwide
Types of borrowers that the funding package may suit:-
- Borrowers, with or without existing equity that have been turned down by their Bank that can show evidence of serviceability.
- Self employed with irregular income with at least two years trading history, not necessarily historically profitable, provided there is a strong story around future profitability.
- Business operators currently leasing but looking to purchase their own premises.
- Those with minor credit history blips.
- Profitable business owners wanting to separate out their homes and personal assets from their business assets but their bank won’t let go of the house even though they don’t really need it
- Business operators effected by the banks tighter serviceability, maximum lending limits, additional covenants, guarantees or cross collateralization criteria.
Specialist property development finance product available
In addition to the above new commercial finance products Global also has access to a specialist development finance product only available for new developments in the greater Canterbury area primarily relating to the re-establishment and/ or the relocation of earthquake effected businesses and properties in the area. Specific details and parameters are available on a case by case basis upon enquiry to Global.
Rural lending - Somewhere to go when the Bank says No!
Despite our continued strong NZ dollar and the turmoil that we have seen around the world, agriculture and farming are enjoying some of their best ever prices across a broad-base, with the exception being the Kiwifruit industry.
Whilst dairy has had another great year, and keeps its title as 2011 “commodity king “, sheep meat, beef and wool have all done well in 2011, with the primary sector still on target for record export income for the year to June 2012, thanks in part to favorable spring growing conditions. To have NZ commodity prices moving in the same direction is indeed rare.
The NZ dairy herd has grown to over 6m head with dairy now accounting for approx 27 per cent of our export earnings, and expecting a record $13.6b income to June 2012 despite our high dollar. Demand for high quality dairy products remains very strong going into 2012 with South East Asia, China, The Middle East and North Africa driving the growth in exports.
Based on a current Fonterra forecast payout for the 2011/12 season of $7.0 and a 5 per cent increase in milk production this year’s payout will be worth about $9.9 billion, which should help farmers shift their focus towards expansion and growth.
The outcome of our growing commodity income will be soaring land prices, with or without any change in bank lending criteria, with or without land sales offshore, with the next few years representing the last one’s for young people to have a reasonable expectation of farm ownership.
Sales of farms climbed 66 per cent in the December quarter, lead by strong growth in the Canterbury region and offshore buying. The number of farms sold rose to 353 in the quarter with eight regions recording increases in sales. (Source REINZ.)
With farm land prices having come back approx 30% in recent years, surely now is the time for rural business owners to consider “ making things happen “.As with the new commercial finance products, now in 2012 is the time for rural operators to take advantage of the many opportunities that are presenting themselves, to move back into growth mode with specialist cash flow lenders that want to support them by ensuring they have the funds they need to refinance existing facilities, support new initiatives for working capital, acquisition of additional businesses, fixed assets and new farm properties etc.
Global Pacific now has available a bundle of such rural based products, to either be used individually or as a package to enable clients to consolidate or expand their finance portfolios, providing considerable flexibility over current restrictive bank criteria .
Key features of the new rural finance products
Rural Term Loans (Land purchase, farm development, capital stock and equipment purchase)
- Up to 75% of LVR
- Interest rates from 8.2% (floating )
- Loan size from $100,000 - $5.0m plus
- Interest only up to 5 years, with review and rollover
- Application fees 1-2%
Seasonal Finance Loans (Stock purchases where the animals are to be fattened and traded/sold in a short period)
- Sheep, Beef, Dairy and Deer
- Trading stock from 12.95%
- One off application fee
- Lend up to 100% of stock being purchased
- No procurement contracts
- No supply agreements required
- No draw down fees
- 12 month facility with ability to roll over
Capital Stock Loans (Stock purchases where the animals are generally retained for breeding and the subsequent off-spring are sold)
- Sheep, Beef, Dairy and Deer
- Facility term up to 36 months
- Can lend up to 100% of stock being purchased
- Security only over stock being purchased
- One off application fee
- No procurement contracts
- No supply agreements required
- No draw down fees
- Repayments structured to match on farm cash flows
Livestock Trading Loans (Any stock purchased for the sole purpose of on selling that maybe traded in 2 plus years)
- Sheep, Beef Diary and Deer
- As per above with the option to capitalize interest until stock are sold
As always to obtain funding it’s a case of knowing where to go, the criteria each funder is looking for and a proper presentation being the key essentials to success.
In today's market if we at Global cannot source funding for a particular deal, whatever the type or risk profile, then nobody can.
Should you or any of your clients or colleagues require finance of any type mentioned above, albeit commercial, industrial, business, development or rural or finance of any description, please call me anytime on 021333011, or contact me via email.
Regards
Ross Hyde
Global Pacific Corporation Limited
112 Gladstone Road, Parnell,
P O Box 3229, Auckland, New Zealand
Phone +64 9 303 3700, Fax +64 9 303 3031
Mobile +64 21 333 011
Email ross.hyde@globalpacific.co.nz
Web site www.globalpacific.co.nz
Global View: is an email newsletter reporting on the New Zealand Economy with a bias towards how it affects the property and business finance markets. It is a regular commentary delivered to you by email every month.
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