May 07

 In my last GLOBAL UPDATE I talked about the huge amount of cheap money sloshing around the world looking for a home. This has led to the emergence and abundance of non-bank financiers and sophisticated new products in the residential and commercial property lending markets.

 

If you’d like a copy of that newsletter give me a call or simply respond to this email asking for one.

 

Well it’s not just the property markets that are seeing the effects of the abundant supply of money. Just look at the funds pouring into businesses in the form of Private Equity.

 

So in this newsletter I’d like to address business lending. And while we arrange all forms of business finance, large and small, with the Small Business Expo opening in Auckland this week and in Wellington and Christchurch in July and August, it’s appropriate to discuss finance for small to medium sized businesses (SMEs).

 

SMEs make up a huge part of the New Zealand economy. And they are notoriously hard to raise finance for.

 

Unless they can show a strong track record of profitability and cash flow for the last three years, and proper sets of accounts, banks are not particularly interested in lending to SMEs. And then they usually want additional security over your house or other property.

 

The most common methods of raising finance for a business - without property or other collateral security - are as follows:

 

• Borrow against stock
• Borrow against debtors
• “Factor” accounts receivable
• Borrow against plant and equipment
• Obtain a “cashflow” lend against the business’s historical results and financial forecasts.

 

The secret in obtaining finance for business is finding the best combination of security and lender.

 

There are several financiers specialising in each category. Amongst these are those that:

• Offer high loan ratio no-financials loans to self employed business owners using residential property as security.
• Require no property security whatsoever.
• Place less requirement on balance sheet strength and more on profitability and cash flows.
• Compete with banks against overdraft facilities by providing more flexibility and understanding of the business itself.
• Will go to higher loan ratios than traditional lenders on all classes of assets including stock, debtors, plant and machinery, and larger chattel and technology items.
• Will schedule a repayment programme that fits the business’s cash flow rather than traditional monthly P&I repayments.
• Place the emphasis on the quality and experience of the management rather than the P&L and balance sheet of the business.
• Are happy with start up businesses.
• Specialise in franchises – different lenders have relationships with different franchises.
• Place more emphasis on who the business sells to. For example some factoring companies are only interested in business rather than retail debtors.
• Enter into partnerships with the business’s trading bank (which usually holds a GSA over the entire business) to either release certain securities or fund against cash flows.
• Offer renting or leasing options
• Are solely in the business of business lending.

 

Many of them will work together to offer the best possible solution to purchase a business or to provide a working capital solution.

And as with property financiers there are new lenders in the market seeking to get a toehold - whether it to be make their presence felt, or because they don’t already have an exposure to a particular sector.

 

A large part of our business at Global Pacific is isolating different securities to different lenders. As I said in the last GLOBAL UPDATE, those that remember the late 80s and early 90s will recall how one poor performing loan could seriously affect other businesses and properties owned, as the lender sought urgent repayment.

 

So even if you’re not looking to buy a business, or to raise more money, re-financing your existing loans could be something you should be looking at.

All in all it’s worth while giving me a call to see how I might be able to help you. You can call me any time on 021 902 004.

 

There are no up front fees. I work on a performance-based fee payable only on the satisfactory delivery of a previously agreed proposal.

Cheers

 

JP

 

 

 

 

John Paine B.Sc. Dip BIA
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 21 902 004
Email john.paine@globalpacific.co.nz
Web site www.globalpacific.co.nz